India needs tax compliance systems that even semi-literate vendors can navigate, said SC Garg, former Secretary of Finance and Economic Affairs, in response to the ongoing GST controversy in Karnataka. Speaking to CNBC-TV18, Garg stressed that while the law must be upheld, its implementation must be mindful of ground realities and the capacity of small traders to comply.
The Karnataka GST department recently issued show-cause notices to nearly 13,000 small traders — including milk booths, tea stalls, and vegetable vendors — for alleged GST evasion based on their UPI transactions. In fear of further scrutiny, many vendors have reverted to cash-only payments — a signal, Garg said, of how complex and intimidating the current system feels to small traders.
Garg warned that this shift from digital to cash transactions was a regressive move. “That’s a very dysfunctional response to a very legitimate and progressive taxation system,” he said. “If there is a cash transaction with no digital footprint, the tax department’s ability to aggregate transactions into turnover becomes very weak.”
Yet, rather than viewing the problem as one of evasion alone, Garg said this moment offers an opportunity to bring micro and small businesses into the formal tax fold. “We have, by rough estimate, about 8 crore MSMEs, whereas the GST system records about 1.5 crore. There’s a vast number of small traders who need to be brought within the tax net — but in a way they can understand and easily comply with.”
To achieve that, he suggested the government set up intermediary support systems — similar to those that already help small firms access credit — to assist traders in maintaining basic records and understanding their GST liability. “The government, instead of treating them as tax evaders, should come up with mechanisms to help them,” Garg said.
He also backed a nationwide awareness campaign along the lines of Karnataka’s “Know your GST” drive, arguing that most small vendors aren’t even aware of where they fall under the tax regime. But he cautioned against blanket exemptions. “Don’t throw the baby out with the bathwater,” he said. “The right solution is to assess it correctly.”
Importantly, Garg pointed out that GST officers must not simply aggregate UPI receipts and send notices. “It’s also the duty of the department to correctly work out how much of the turnover is actually exempt and what portion is taxable. Offer the option of composition — that detailed working should be done.”
He also highlighted that many of these businesses may fall under the ₹1.5 crore composition scheme, which allows for simpler compliance, such as filing quarterly returns and paying a flat tax rate. This option, he said, is often overlooked.
As political debate swirls around the issue, Garg urged a practical approach rooted in accurate assessment and empathetic policymaking. “India has very special problems,” he said. “But those problems demand special solutions.”
