Rahul Mehta Gandhinagar LsCandidate
DTSTP = Double Tax on Small Traders problem - How GST effectively imposes DOUBLE TAX on buyers of small traders and small manufactures !!!
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GST is shown as "single tax" system. Well, lets see a HUGE lie part in this statement. The reality is that GST imposes DOUBLE tax on large buyers of small sellers - and thus large buyers will reduce or stop buying from small traders and small manufactures. So small manufactuers and traders will have to move to "18% GST with input tax credit system", and there, they will get slaughtered due to Missing Trader Problem !!
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Index
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(1) Overview
(2) Tax when all vendors in supply chain are "regular"
(3) Tax doubles one vendor in supply chain are nonregular
(4) Effect of DTSTP?
(5) Why small companies are important?
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chap - 1 : Overview
Lets say a trader or manufacturer has turnover above Rs 20 lakhs but below Rs 75 lakhs. He has option to take two systems
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(A) Regular scheme
(A1) pay 18% GST on sales (or 0% to 28% as per goods)
(A2) his buyers can claim GST paid as input credit i.e. they
(A3) subtract input tax paid on purchase, if seller is large vendor !! And subtract zero if seller
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(B) Unregistered or Composite scheme
(B1) pay "only" 0% or 1% GST on sales
(B2) buyers cannot subtract GST paid on purchases
(B3) vendor cannot claim GST paid to his seller and GST he paid cannot be passed as input credit to his sellers
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So how will this reduce business of small traders and manufacturers?
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Please grab a calculator and paper pen (or use excel)..
PLEASE GRAB A CALCULATOR AND PAPER/PEN (OR EXCEL).
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And pls see this image - https://www.facebook.com/photo.php?fbid=10154530580526922 or better open this pdf file PC - https://www.facebook.com/groups/ProposedLawDrafts/1873091969574798/ and pls take its print out.
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( If you think that you can understand GST or wealth tax, without calculator (or excel), then imo, you are super genius or a misguided person.)
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To understand, we study two sales chain
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(A) OM -> Large Trader -> C - > Final
(B) OM -> Small Trader -> C - > Final
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OM = Original Manufacturer , C = some large vendor , Final is Final buyer
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We take original cost as Rs 9800 and say each vendor takes profit of Rs 200
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chap - 2 : Tax when all vendors in supply chain are "regular"
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(A) Total GST and Final cost in OM -> Large Trader -> C - > Final
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Pls see (rows 7 , 8 , 9)
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row-7 : OM -> Large
cost = Rs 9800
profit = Rs 200
cost + profit = Rs 10000
GST = Rs 2000
sell price = Rs 12000 = Rs 10000 + Rs 2000 input credit to Large
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PLEASE NOTE - In GST, the final price has two components - price and GST. GST amount on bill be nil if seller is composite or unregistered. And the cost too will have two components - raw cost and GST inout credit that can be claimed.
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row-8 : Large -> C
cost = Rs 10000 + Rs 2000 input credit = Rs 12000
profit = Rs 200
GST = Rs 2040 (20% on product cost + profit)
sell price = Rs 10240 + Rs 2040 input credit to C = Rs 12480
GST Large will deposit to Govt = Rs 2040 - Rs 2000 = Rs 40
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row-9 : C -> Final
cost = Rs 10400 + Rs 2040 GST input credit = Rs 12480
GST = Rs 2080
sell price = Rs 10480 + Rs 2080 GST = Rs 12480
GST C will deposit to Govt = Rs 2080 - Rs 2040 = Rs 40
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IOW cost to Final user is = Rs 12480 , of which Rs 2040 is input credit
Total GST Govt collected = Rs 2000 + Rs 40 + Rs 40 = Rs 2080
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chap - 3 : Tax doubles one vendor in supply chain are nonregular
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(B) Total GST and Final cost in OM -> Small Trader -> C - > Final
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Pls see (rows 12 , 13, 14)
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row-12 : OM -> small
cost = Rs 9800
profit = Rs 200
cost + profit = Rs 10000
GST = Rs 2000
sell price = Rs 12000 = Rs 12000 + Rs 0 input credit !!!
gst paid to govt = collected - input credit of OM = Rs 2000
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Why zero input credit? Because Small is either unregistered or compsoite and so he cannot claim or cannot pass input credit !!
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row-13 : small -> C
cost = Rs 12000 + Rs 0 input credit = Rs 12000
profit = Rs 200
GST = Rs 0 (0% or 1%, we ignore that small amount)
sell price = Rs 12200 + Rs 0 GST inout credit = Rs 12200
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The input credit that C will get will be zero because small is either unregietered or compsoite !!
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And now comes real killer !!!
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row-14 : C -> Final
cost = Rs 12200 + Rs 0 GST input credit = Rs 12200
GST = 20% of Rs 12200 = Rs 2480
sell price = Rs 12200 + Rs 2480 GST = Rs 14880 !!!
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IOW cost to Final user is = Rs 14880 , of which Rs 2480 is input credit he can claim.
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But final price is pay is about Rs 2400 HIGHER !!
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So moment one unregistered or compsoite trader comes in supply chain, the cost of product to end user will shoot up by about 20% (or 5% or 12 or 18% or 28% as may be the GST rate)
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chap - 4 : Effect of DTSTP?
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This is what we activists at Right to Recall Party call as DTSTP i.e. Double tax on Small Trader problem i.e. buyer of in a supply chain, where there several regular GST vendors but one unregistered or composite vendorr, will end up paying twice the GST compared to supply chain where all vendors are large.
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As a generalized statement, if a supply chain SC1 has N regular vedors and K non-consecutive unregistered / compsoite vendors, the tax will (K + 1) times compared to supply chain SC2 where all venords are regular.
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So buyers will quit supply chains where one or more vendor is unregistered or composite are in supply chain.
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So unregistered or composite will get finished unless they switch to regular.
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And if and when they switch to regular, Missing Trader Problem will finish them !!
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So sooner or later, effect of DTSTP and MTP will be - market share of smaller player will reduce. They will get finished, and new small palyers will NOT come. And share of large players will increase. And number new players that will enter market will also reduce, as most new players in general are small.
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So production of small companies will decrease and production of large companies will increase. On-book economy will increase but off-book economy will decrease, and total may decrease !! Likewise, on-book employmen will decrease and off-book economy will decrease. And total may decrease. The small companies which will shut down will increase unemployment but large companies who business increases will hire more. So off-book employment will decrease but on-book employment will increase. And total employment may decrease.
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Also, the elders will lose jobs, and the large companies whose business grows will hire mostly younger. So unemployment in middle age will increase and unemployment in youngsters will decrease !! But total unemployment will increase
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And consider a country like USA which doesnt have GST and country like India which has GST. Then in USA, small existing and small newcomers will be able to grow whole DTSTP or MTP will do a lot of damage to small existing and small newcomers. So USA economy will operate at much higher efficiency than Indian economy (and there are other factors too - such as RTR, JurySys, referendum,
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The small new employers play critical role in giving skill to less skilled or unskilled less educated or uneducated labor. As small companies reduce, the shortage of skilled workers will increase. The college procedure unskilled diploma holders, and they gain skills ONLY in small companies. The small companies, and NOT diploma giving colleges are giving REAL skill addition and skill related education in India. The colleges are more of timepass, except some elite colleges which only give theoritical knowledge. As number and strength of small companies in market reduce in India, the whole process of skill addition will suffer.
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All in all, GST will worsen USA / India strength ratio. And as strength ratio further reduces, dominance of USUK-elitemen and Missionaries will increase.
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So wealth tax is a better proposal. And STAS can reduce the mess MTP creates.
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So will
SOLUTION?
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One solution is STAS. And a better solution is to end GST, Excise, VAT, Service Tax, CST etc and use Wealth Tax and reduce exemptions in Income Tax (such exemptions to SEZ, infrastructure etc).
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So please send following tweets to @PmoIndia
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(1) @PmoIndia #CancelGST #DTSTP GST kills small traders / manufacturers , because their buyers face double GST ; so their buyers leave them
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(2) @PmoIndia print #WealthTax law at mygov.in/comment/101416021 sh1= #1e44aa1f17c5139330e8cf62e29f5eddcbb12122 to reduce land prices, create jobs
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(3) @PmoIndia print #STAS GN to solve GST's Missing Trader Problem. GN at mygov.in/comment/101405141 sh1= #210e9f8402d2009db1a11a2cdba7dd04b480e167
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And pls create an album in your FB profile called as "Law Drafts I support" . And pls copy links to the tweets you have sent in the status in that album. This will increase possibility that STAS law will get passed and also increase possibiity that Wealth Tax law will get passed.