Karnataka stands to lose up to Rs 1,400 crore annually if the input tax credit (ITC) proposals deferred by the GST Council on Thursday are approved, adding to the strain on the state’s already precarious finances.
At the GST Council, Karnataka opposed the widening of ITC for businesses on motor vehicles. This would mean an annual loss of Rs 900 crore to the state, a senior finance department official said.
The GST law generally bars businesses from claiming ITC on passenger motor vehicles with a seating capacity of up to 13 persons, including the driver, except when used for specified taxable activities such as resale. The proposal to relax this restriction was opposed by Karnataka.
“The implication is close to Rs 900 crore per year. This is assuming that the current number of vehicles registered for business purposes remains the same,” the official said.
Apparently, the union government views the proposal as a pro-business measure. For example, a company purchasing a car worth Rs 10 lakh will be liable to pay GST of Rs 2.8 lakh. Under the proposed measure, the company can get Rs 2.8 lakh back as tax credit.
Karnataka has argued that the proposed measure can be misused. “It’ll create a huge incentive for personal vehicles to get registered as vehicles used for business,” the official said.
“Say, I’m buying a vehicle, but I don’t own a business. I’ll know someone who has a company. I’ll ask that person to buy the vehicle in the company’s name in exchange for some money and claim ITC. That’s the risk,” the official explained, adding that the GST Council deferred a decision following apprehensions expressed by several states.
Karnataka also opposed a proposal concerning ITC on supply chain.
Consider this example: A manufacturer sells goods worth Rs 1 lakh to a wholesaler and charges Rs 18,000 as GST. The wholesaler pays the manufacturer Rs 1.18 lakh and later sells the goods to a retailer, charging GST on the onward sale. However, if the manufacturer fails to remit the Rs 18,000 GST to the government, the wholesaler could be denied ITC.
The proposal seeks to protect genuine buyers from losing ITC because of a supplier’s failure to deposit the tax.
“If this is implemented, there’s a huge incentive to generate more fake ITCs. We’ll be staring at a loss of up to Rs 500 crore,” the official said.
Apparently, Maharashtra Chief Minister Devendra Fadnavis was the strongest opponent of this proposal. Apparently, Fadnavis said many fake ITCs were being generated already and sought clarity on how authorities planned to check this.
Any revenue loss will be difficult to digest for Karnataka. Recently, the Finance Department said salary payments were hit and asked Chief Minister D K Shivakumar to be “realistic” while announcing new projects.
Read more at: https://www.deccanherald.com/india/karnataka/karnataka-fears-rs-1400-crore-annual-loss-from-input-tax-credit-proposals-4177248
