Estimates may vary, but clearly, the size of the black
economy is monstrously large. Several factors are responsible for this. The type
of faulty T R Rustagi, Ex-Joint Secy, Union Finance Ministry tax structures that
we designed for ourselves, the ineffective and inefficient manner in which we
implemented and enforced the tax laws and the lukewarm societal disrespect
towards tax evaders have all contributed to the mess we are in. Surely, the
problem is not acute — it’s chronic. Perhaps we need to move forward in all
directions with a bold and renewed agenda.
A GST-exempt business
(say, X) is still required to pay GST on its purchases
from its supplier (say, Y). The GST becomes part of the
cost of operations of X when X sells its products to its
business customer (say, Z). When Z further sells the
product, it is not able to recover the GST on its
purchase from X, although a significant component of the
cost is in the GST that has already been paid to Y. This
has resulted in double taxation of GST.
To overcome this disadvantage, many small businesses
have voluntarily registered to be subject to GST and
incur the additional cost of keeping a separate set of
records to comply with GST. The Inland Revenue Authority
of Singapore (Iras) also has the burden of collecting
small amounts of GST from small businesses.
To simplify the administration for Iras, to reduce the
GST compliance work for businesses and to help GST-exempt
small businesses, all eligible purchases should be
allowed for computation of GST, regardless of whether
the supplier is subject to or exempt from GST.
In preparing the GST return, the business can use its
normal accounting records, without having to keep a
separate set of records to identify the GST.
The policy decision to allow GST exemption to small
businesses is welcome, but should not be done in a way
that results in double taxation or increases the
compliance cost on small businesses.
