Indirect taxes have always been passed down the supply chain, with the buck stopping with the ultimate consumer. So much so the theory of undue enrichment of manufacturers came into vogue and incorporated in our excise law among others, resulting in denial of refund of excise to the manufacturer unless he could prove he bore the brunt.
Invariably, the brunt has been borne by the housewife or other householders but who have neither had the wherewithal nor the inclination to claim refund in case duty was paid in excess.
The advent of destination based tax regimes VAT and service tax has lent urgency to the need for acknowledging the truism that it is the ultimate consumer who picks up the tabs. And the impending advent of GST makes such acknowledgment all the more imperative and compelling.
Suppose a housewife shops at a departmental store for Rs 10,000 towards her monthly grocery requirements and included in this amount is VAT of Rs 1,000. There is no reason why she should not be allowed to quote her or her husband’s permanent account number (PAN) issued under the income tax law.
The stores’ accounting system would now have the details of the buyer including the tax paid by her. If the stores files a sales tax return for the next quarter, it would include the tax paid of Rs 1,000 by the housewife in the example on hand.
Indeed, the VAT deposited, say of Rs 0.50 crore, by the store would have been contributed by hundreds of such housewives or householders after taking credit for VAT already paid by predecessors in the supply chain.
In a computerised ecosystem, keeping details of all of them including PAN would hardly pose a problem either for the store or the revenue department of the government which ought to send out receipts either physical or electronic to each one of them, may be in the omnibus AS-26 statement allotted to each PAN in acknowledgment of the fact that at the end of the day it was not the manufacturer nor the wholesaler nor the retailer who actually picked up the tabs.
That many of the buyers may not show any interest in furnishing PAN does not detract anything from the force of the basic argument that the end consumers’ role must be acknowledged.
Such acknowledgments to ultimate consumers would serve two purposes:
1) No trader would take the nation for a ride - collecting tax and pocketing it without batting an eyelid or compunctions. That amounts to thumbing nose both at the government and the ultimate consumers some of whom might watch over their taxes meticulously and some at random. The rogue trader’s goose would be cooked if a consumer files a complaint with the details of his invoice and it turns out that he had blithely been pocketing the VAT;
2) The nation as a whole would become tax compliant especially if gradually the government unfolds a regime of credit or adjustment against one’s income tax liability albeit on a small scale to start with. For example, let us say a PAN shows Rs 20,000 as VAT or GST paid during the year.
This is as much a contribution to nation’s exchequer as direct tax paid by him by way of TDS or advance tax except that no part of it is refundable. When GST is unveiled, perhaps the government can give a small rebate from income tax from out of his GST contribution to the nation.
To start with it can be as low as 2% of the GST paid during the year. In the example on hand, it translates into a rebate of Rs 400 from his income tax liability. The rebate percentage can be increased as nation’s finances perk up gradually.
Indeed in such a regime, PAN would become the lynchpin which would be applied for with enthusiasm and not under duress by those not having it already. Income tax rebate, small though it might be, would be the gravitas. And organised retailing would get a boost, with they alone having the wherewithal and inclination to keep meticulous records of buyers including their PAN.
Of course, stores cannot compel housewives and other buyers to furnish PAN unless it happens to be a high volume transaction for which the CBDT has made furnishing of PAN mandatory. But then people react positively if suitably incentivised.
It must be reiterated that it is neither necessary nor practicable to tote up all the credits in various PANs and see if it tallies with the GST collected. That might happen in an enlightened society with a manageable population.
The author thankfully acknowledges that the idea of receipt to the ultimate consumer was provided by Mr. Sampath, an air force veteran living in Chennai with an abiding interest in indirect taxes.