New GST rules to slow down biz in K'taka, say experts

New GST rules likely to slow down businesses in Karnataka, say experts

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The Centre's CGST (14th Amendment) Rules, 2020, notified on Wednesday, have raised concerns with many industrialists fearing that they will further slow down businesses already hit by the pandemic.

The frequent changes in the GST regulations have irked many, with industrialists pointing out that instead of ease of business, the taxation system was only adding to the confusion.

"We want these rules to be withdrawn. We will soon give a representation to the GST Council," a member of FKCCI said, requesting anonymity.  

As per one section of the amendment, businesses where the value of taxable supply in a month exceeds Rs 50 lakh, will be able to use only 99% money available in their electronic credit ledger (which works like an electronic passbook reflecting input tax credit available for each taxpayer), locking 1% money. This, industrialists say, will create problems for liquidity forcing businesses to ensure additional 1% working capital all the time. 

Economic analyst Nityananda said the government was effectively stopping taxpayers from using their own money through this regulation. A few exemptions are granted under the rule, which includes an exemption for those who have paid their output tax through the electronic cash ledger for an amount of at least 1% of their total output tax liability.

However, it still puts the taxpayer in jeopardy as ultimately the system is forcing businesses to have an additional 1% of working capital at all times, Nityananda added.

Further, even though the regulation is limited to business with taxable supply of at least Rs 50 lakh a month, it covers a large gamut of industries, including several small business, according to the analyst. "In many cases, the volume of turnover is high, but the margin of the business is low. This could impact even small businesses." 

For small businesses, there is another concern. The GST Council recently gave an option for businesses with a turnover up to Rs 5 crore to file their GST returns on a quarterly basis. This also eats into liquidity, experts said. 

"This has a huge impact on small scale industries. We buy materials from a trader, paying tax for the material. Until the person files the returns, we cannot claim our input tax credit. This blocks our working capital, especially in times of Covid-19," explained Umashankar, chairman of GST panel, Karnataka Small Scale Industries Association (KASSIA).