New Delhi: A group of ministers under Bihar deputy chief minister Sushil Kumar Modi has recommended doing away with reverse charge mechanism, a key anti-evasion measure under goods and services tax (GST). Separately, another group of ministers has also recommended deferring a proposal to incentivize digital payments under GST by at least a year.

Implementation of the reverse charge mechanism is likely to be disruptive for small traders, a key electoral constituency of the ruling party at the centre—the Bharatiya Janata Party (BJP).

Under the reverse charge mechanism, entities registered under GST that purchase goods from small unregistered dealers have to pay a tax on behalf of the latter. This will add to the compliance burden of all involved and discourage purchases from unregistered dealers.

The panel has recommended deleting section 9 (4) of the GST Act dealing with the reverse charge mechanism, Modi said after the meeting.

Mint had reported on 3 July that the reverse charge mechanism was unlikely to be implemented as the central government was of the view that likely revenue gains were not commensurate to the hassle it would cause traders.

According to government estimates, around 1% of the 11.2 million taxpayers under GST pay around 80% of the taxes with the remaining 10 million dealers paying the remaining taxes.

To be sure, a final decision will be taken by the GST Council at its next meeting on 21 July.

The implementation of the reverse charge mechanism has already been deferred several times in the past year with the latest notification postponing its implementation till 30 September.

Separately, another panel under Modi has recommended deferring the proposal to incentivize digital payments by at least a year, citing the need for stabilizing GST revenues before implementing such a measure.

The incentive would have cost the exchequer at least 12,000 crore, according to current estimates. However, with growth in digital payment transactions, this amount could be much higher.

The panel will submit its recommendations to the council, which will take a final decision.

The GST Council, at its previous meeting, had debated on a proposal to give a tax concession of 2% to consumers making digital or cheque payments subject to a cap of 100 per transaction. Following lack of a consensus, the group of ministers was constituted to look into the proposal.

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