Rahul Mehta Gandhinagar LsCandidate
Solution to (a) GST's missing trader problem i.e. "buyer has to deposit GST again if seller doesnt pay deposit GST to Govt". --- STAS i.e. Separate Tax Account System
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SUMMARY
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GST law-drafts have three serious problems
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(a) GST is more regressive than wealth\income tax, and so IMO GST does more damage to economy\nation than wealth\income tax does. And so we at Right to Recall Party have proposed that GST \ Excise \ VAT \ ServiceTax etc should be abolished and instead India should have wealth tax. But that is a separate political topic and we have discussed it separately in other posts. This post is ONLY to explain a proposed technical / administrative and non-political solution to second problem
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(b) second problem is what we activists call it as MTP = missing trader problem. MTP means - "a registered buyer must first pay GST to seller, and if seller doesnt deposit GST to Govt, then that buyer must defacto pay GST to Govt once again" , because "input credit" will be denied !!
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(c) Even for a small trader whose turnover is barely Rs 20 lakhs, GST requires him to file as many as 37 returns a year
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We at Right to Recall Party have proposed a solution to MTP called as STAS i.e. "Separate Tax Account System" to completely solve MTP, when payments are made via banks.
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In order to deal with MTP, GoI has proposed a solution that involves that every trader / manufacturer to upload some 37 to 62 returns every year !! And also provide almost all details of sales and purchases - such as buyers'/sellers' names and GST numbers , amount of goods bought / bought, codes of all the goods bought/sold, GST paid or GST collected and so on. And even then it does NOT solve MTP.
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We at Right to Recall Party (to be registered) believe that if MTP is not solved, then small manufactures and small traders will severely adversely effected. They will completely lose out to large players. If small players loose out due to technological reasons, then I dont oppose it. But if tax laws create environment that favors large over small, then it will ruin the national economy. Because competitiveness in economy comes due to new players ONLY and not due to incumbents. And new players in the beginning will mostly small players.
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So we request all activists and all voters of India to support the proposed STAS = "Separate Tax Account System" by giving advertisements and also sharing information on twitter / FB.
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DETAILS
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List of chapters
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chap-01 : what is missing trader problem?
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chap-02 : how will MTP "wrongfully" slaughter small manufacturers and small traders
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chap-03 : solution to MTP we propose - STAS i.e. Separate Tax Account System
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chap-04 : How does STAS stop MTP and GST evasion with just 5 returns per YEAR
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chap-05 : Half-baked tedious non-solution to MTP by Govt
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chap-06 : what can YOU activists do to generate mass movement to force or convince SoMoKe and CoRaAp MPs to print this STAS law?
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chap-01 : what is missing trader problem ?
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GST law-draft called as Central GST dated 12-apr-2017 has clause-16.2.c, which enshrines " 16. .... (2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless, ....... (c) .... the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and ... "
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So whats the efffect of this clause-16.2.c ?
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Imo, say a buyer B buys goods worth Rs 1000 from seller S, and say GST rate is 20%. Then as per GST-act, seller S must collect, and buyer B must pay GST of Rs 200 GST. And then seller S is supposed to deposit Rs 200 in Govt account, or adjust against his GST payable. But if seller S doesnt deposit this GST amount in Govt treasury, then buyer B (if B is registered vendor, and B is not an end user or small vendor), will defacto have to pay Rs 200 to govt again, because "input credit" will be "denied".
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This problem in activist circuit is called as MTP = Missing Trader Problem. The economists amd political science professors have refused to give a term to this problem !! As per them, this minor legal / technical problem and has no impact in economy / politics. So economists insist on completely ignoring away the problem, which as per them is non-problem.
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This problem isnt there in Excise or Income Tax or Wealth tax. In market, the sellers will eventually pass the burden of taxes sellers to pay on the buyers. Say buyer B buys from seller S. Then indirectly, buyers will have to pay burden of taxes S has to pay. And indirectly, or directly, S will collect taxes he has to pay from B,. And say seller S was supposed to pay Excise or Income Tax or Wealth Tax which he didnt pay. Then the Govt will ONLY chase the seller S and buyer B will NOT get harmed in anyway by the Govt. IOW, Excise, Income Tax and Wealth Tax are bipartiate i.e. Govt and tax-payer, while GST / VAT are tripirtaite ii.e. involve Govt, seller, Buyer at the same time.
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So this is the MTP problem in nutshell - if seller doesnt deposit GST collected in govt then buyer will have to pay GST again to Govt !! And the problem doesnt apply to buyers who are end users (those who take retail invoice) or small traders who dont have GST registration.
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chap-02 : how will MTP ruin small traders and small manufacturers?
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Consider any town and say that town has 1000 small trader/manufacturers S1 to S1000 and 10 large trader/ manufacturer say L1 to L10 dealing with same commodity.
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Now say a buyer buys goods from L1 and also from say S1.
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Then in which case buyer is more likely to face MTP?
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MTP i.e. seller will walk away without depositing GST he collected in Govt account is unlikely with large trader L1. Why? Because large vendors have better way to rob nation or govt (eg take loans from bank and dont repay, and buy Govt land and mines for cheap by rigging or bypassing auctions, or take ownership of private oligopolies like trainstations etc). To collect GST from buyer and not deposit in Govt account, the seller will have to "disappear" or "dodge notices". And such seller also need to ensure that he sold all his property. A large vendor has too much property and cant do act of disappearing or dodging.
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In short, a large vendor has better ways to loot nation and govt that openly default on GST. And large vendor will be simple unable to disapper and default on GST payment. But a small player can sell all his assets in a short time and disappear or evade notices/arrests and refuse to pay GST he has collected from the buyer.
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Now say a buyer buys goods from a large trader L1 and also from say small trader S1. Then in which case is buyer likely to face MTP?
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The buyer is very much more likely to see MTP in same of small vendor S1
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So lets say a buyer buys 100s of goods from L1 to L10 and 100s of goods from S1 to S1000. Now not even one of L1 to L10 will defunt. And hardly 1% of S1 to S1000 will default. But as a result, next year, buyer is more likely to stop dealing all S1 to S1000 !!
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IOW, more than 95% to 98% of small vendors will deposit the GST they have collected. But some 2% to 5% will default. But GST payment default in large vendor will be 0%.
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So almost every buyer will feel "I am better of buying goods from large vendors because they dont do GST evasion that small vendors often do, and I suffer".
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So due to faults or deliberate fraud or both of some 2% small sellers, many buyers will stop buying from ALL small sellers and start preferring big sellers as far as possible. So even the small vendors who are regularly paying GST, due to environment of mistrust created by some 2% to 5% defaulters, will lose clients to large vendors.
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So GST and resulting MTP = Missing Trader Problem starts extermination of all small vendors.
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This problem is NOT there in Excise or Income Tax or Wealth Tax. In any market, sellers will evntually pass their tax burdens to buyers. So when buyer B buys from seller S, eventually, the Excise , Income Tax or Wealth Tax paid by S will be collected from B, But if S doesnt pay Excise or Income Tax or Wealth Tax that he is supposed to pay, then buyer B will NOT suffer any damage from Govt
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chap-03 : solution to MTP we propose - STAS i.e. Separate Tax Account System
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We at Right to Recall Party have proposed that GST, Excise, VAT, sales tax, Service Tax, CST, entry tax etc should be abolished and instead (Wealth Tax minus Income Tax paid minus other credits) should be used. And Income Tax should be streamlined - by removing exemptions like SEZ, lower rates for capital gains, Mauritius Treaties etc. The main reason why we oppose GST and support WT and streamlined IT is - GST is more regressive than Wealth Tax and Income Tax. And second reason why we oppose GST is MTP.
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But wealth tax is separate topic. This article is solution to GST's one specific provlem - MTP i.e. Missing Trader Problem.
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Here, we have a solution to MTP. Even after solution to MTP, we oppose GST and support (Wealth Tax minus Income Tax paid minus other credits) because GST is regressive.
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Now I will confine to solution to MTP namely STAT i.e. Separate Tax Account System.
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To implement Seperate Tax Account System, PM will have to print following GN = Gazette Notification.
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---- summary of STAS GN ----
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And the banks will operate an Tax Account as follow
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(1) The Tax Account will be tied with one and exactly one Current Account in the same bank branch.
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(2) The interest on Tax Account will be same as Savings Account in that bank branch.
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(3) The Bank will allow a Current Account owner to tranfer money to his own Tax Account and not any other Tax Account
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(4) The Bank will not allow anyone to deposit cash in Tax Accounts. Cash mayt be first deposited into Current Account and then transferred into Tax Account.
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(5.1) IMPORTANT - The Bank will allow Tax Account owner B to transfer funds into another Tax Account owned by S, and it will be presumed as payment of GST paid by B for goods and services he bought from S. B may specify details of invoice against which GST payment is done. And both banks these details.
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(5.2) IMPORTANT - The Bank will allow Tax Account owner X to transfer funds into Govt Account and will be presumed as payement of GST.
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(5.3) IMPORTANT - Money from Tax Account cannot be transferred to any Current Account or any account except any Tax Account or any Govt Account meant for payment of GST. If owner of Tax Account wants to money to be deposited into his current account, then he must first deposit into Govt's GST account, and then ask for a refund.
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(6.1) IMPORTANT - An individual or company may take a digital card such as debit card or credit card, and link the card to his current account which is linked with a tax account.
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(6.2) IMPORTANT - when owner B wants to pay Rs X to S using debit card, the bank will allow B may specify Rs X1 as payment of goods and Rs X2 as GST (Rs X = Rs X2 + Rs X2). In such case, the card issuing bank must withdraw exactly Rs X1 from current account of B and exactly Rs X2 from Tax Account of B. And it must deposit exactly Rs X1 into current account of S and Rs X2 into Tax Account of S.
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(6.3) IMPORTANT - when owner B wants to pay Rs X to S using credit card, the bank will allow B may specify Rs X1 as payment of goods and Rs X2 as GST (Rs X = Rs X2 + Rs X2). In such case, the card issuing bank must deposit exactly Rs X1 into current account of S and Rs X2 into Tax Account of S. And later, while accepting payment from B, bank must accept Rs X1 from current account of B and Rs X2 from tax account of B.
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(7) A bank which is supporting Tax Account may provide cheque which have three lines to denite amounts - first line for bill amount, second line for GST and third line as total. The total must be sum of first two lines or else cheque will be returned. And when such cheque is passed, the money from first line will be withdrawn from Current account and will get only eposited in a current account. And money from second line will be withdrawn from Tax account, and can be only deposited in a Tax Account. The cheque can have additional lines such as invoice number, invoice date etc and bank shall enter and store these data.
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(8) The bank can also support a feature that in case balance in Tax account is insufficent, then automatica transfer from current account to tax account will be made, so that cheque or debit card payment need not be returned. The current account must have sufficient funds.
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(9) Banks may put charges to manage the Tax Accounts
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(10) RBI may make additional rules to comply with GST Act and Banking Act
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--- end of GN ---
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I have uploaded the full STAS GN-draft on mygob dot in. The link is in the first comment
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With this, MTP can disaappear !! HOW?
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Say B has bought goods from S of Rs 10000 from S and say GST is 20% and so GST of Rs 2000 is due. Then B can pay Rs 10000 from his normal account to S and B can write cheque or card payment of Rs 2000 from his Tax account to Tax Account of S.
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Now the cheque of Rs 2000 made in favor of Tax Account of S will be deposited ONLY in Tax Account. So S can use this money ONLY to pay Govt or pay GST to his buyers.
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And money that comes into a Tax Account will always remain in Tax Account, or will go to Govt Account only. It can be moved from Govt Account to Normal Account only after Govt Officer approves a refund.
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So in case S defaults, then the GST paid is still in account of S or has been paid by S to relieve his GST input credits. In any case, B is now off the hook !! There is no reqason to deny input credit to B.
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So buyer B will never face MTP, as long as pays by cheque or card using Tax Account.
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If buyer B has paid cash to S, and is S doesnt pay GST, then B can face MTP. But as long as buyer N is paying seller S via cheque or card, MTP cannot arise with B.
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IOW, STATS = Separate Tax Account System enables buyer B to directkly deposit GST payment due on his purchase to his Govt. And thus he wont face MTP.
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(Aside : Later, one can add feature that one can make payment from Current Account and Normal credit/debit cards into seller's Tax Account, but not other way. This will reduce GST evasion. But using this system, Govt can give 25% GST paid directly into Tax Account as rebate in income tax, and thus TOTAL tax revenue (GST plus income tax) increases !! . I request reader to note that that STAS also increases total , (GST + Income Tax) Tax collection. This isnt needed to solve MTP and so right now, I am skipping it right now).
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Now how can STAS be implemented on cash payments? YES. How?
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Well, China has two paper notes - Normal Yuan and FEC i.e. Foreign Exchange Certificates. Same way, RBI can print two rupee currencies - Normal Rupee and Tax Rupee. Tax Rupee can be deposited ONLY in a Tax Account and will be assumed as payment for Tax collection. And Tax Rupee can be withdrawn only from Tax Account, and within limits. So when a buyer B buys goods of Rs 1000 plus GST of say Rs 200 = Rs 1200 by cash, he can pay Rs 1000 using normal cash and Rs 200 using Tax Rupee notes. If one looks at how China has SUCCESSFULLY implemented FEC since 1980s, then one can see that implementing separate Tax Rupee is NOT difficult at all. In absence of "Tax Rupee Note System", "25% of GST paid shall be rebate in income tax" will force end buyers to use cards or pay by cheque. So I support implementation of Tax Rupee System. But all those are side issues as of now. This article is only about MTP and STAS, and so I will give details on "Separate Tax Rupee Note System" later.
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chap-04 : How does STAS stop MTP and GST evasion with just 5 returns per YEAR
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With STAS, each registered vendor had to file just one following QUARTERLY return
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The return of say 01-apr-2018 to 30-jun-2018 , the vendor can file just one return say on or before 31-jul-2017.
List-1 : List of invoices of goods sold with buyer IDs, sale date, amount buyers paid into Tax Account, date
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List-2 : List of invoices of goods sold with buyer IDs, sale date, amount buyers paid into Normal Account, date paid
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List-3 : List of invoices of goods sold with buyer IDs, sale date, amount buyers paid by Cash , date paid
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List-4 to List-6 : goods bought, with sellers, same as above.
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In fact, for small vendors whole turnover is below Rs 2 crore, the list can be skipped and replaced by single entries, with rule that GST credit will be given to buyer ONLY if they have made direct deposit into Tax Accounts. So here, the seller need not give all the invoices' details.
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Now if payments of GST are done my buyers using Tax Accounts, then entries of buyers and sellers, along with entries given by bank of their Tax Accounts will match. So there is NO need for monthly returns, though buyer/seller and banks may upalod their invoice details anyday before quarter end.
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All in all, since funds deposited in tax Account never come into Normal account, and eventually go into Govt account, ensures that buyer will never face charge that "you didnt pay GST" or "your seller didnt pay GST" as long as buyer has deposited money directly into Tax Account owned by seller. So there is no need for monthly returns. They can be made optional, but not compulsory.
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chap-05 : Half baked "solution" of MTP by Govt
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Govt has printed laws that buyers and sellers will have to upload montnly returns in which they must show GST paid or to be paid and GST collected or to be collected, for each buyer and each seller. This does NOT solve the problem is seller is hell bent on evading !!! If seller refuses to show the transaction, then buyer will NOT get input credit and all he can do is complain and run around. And for all practical purposes, he will end up paying GST he has paid twice.
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So all in all, Govt has installed system of filing 3 returns to 5 returns a month, and that ONLY makes buyer aware of problem, does NOT solev the problem. And the system can generate many false alarms, i.e. some delay by seller can make buyer think that seller is defaulting !!
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So all in all, SoMoKe have clumsy solution that doesnt even address the problem
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chap-06 : why SoMoKe and CoRaAp-workers oppose STAS?
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The real intent behind GST is NOT to increase tax collection, but to slaughter small and medium traders and factory manufacturers. If Tax collection was the reason, then SoMoKe would have gone for Wealth Tax.
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SoMoKe in reality are mere puppets of their sponsors. The USUK elitemen who pay for their media sponsorship decide what SoMoKe would do. The USUK elitemen want tax laws that are regressive and tax laws that increase distrust against small and medium businesses in India. This is principle reason why SoMoKe have supported GST over wealth tax. And SoMoKe have opposed STAT because that reduces the mistrust that small / medium businesses will suffer due to MTP.
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CoRaAp ( = Congress / RSS / AAP , RSS = BJP, just as Gangadhar = Shaktimaan) workers dont give a damn on what happens to India. All they wish is well being of their apex leaders and their organizations. And so they too have supported GST over wealth tax, and oppose STAS.
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Further, if STAS comes, then reputation of myself and my Right to Recall Party will increase. And that may increase my vote in coming elections and also increase votes of candidates of our Right to Recall Party. And that will reduce votes Congress / RSS / AAP wll get in the elections. Lesser votes, lesser chances of forming Govt and lesser bribes - which is a huge loss for them. So strategy of Congress / RSS / AAP is to oppose STAS and in case STAS comes, the credit should go to SoMoKe and CoRaAp.
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chap-07 : what can YOU activists do to generate mass movement to force or convince SoMoKe to print this STAS law?
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I request you to take following steps
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(7.1) Pls tweet @PmoIndia to print STAS law-draft. My tweet is in the first comment of this post.
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(7.2) Pls create an album in your FB profile names as "(001) Law Drafts I support"
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(7.3) Pls post link to your tweet in the above FB album. Pls ask your friends etc to support STAT using above three steps.
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(7.4) Pls give newspaper advertisements describing STAS and asking activists and voters to support STAT
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(7.5) Use other means as you may wish