GST Bill passed: Will it really end 'kacha bill' system? Here's why many are doubtful

The government may have won a painfully long war on the Goods and Services Tax (GST) Bill in the Parliament on Monday, but the issue of Kacha bill and Pakka bill continues to be a riddle. During the passage of the Constitution (122nd Amendment) Bill, better known as GST Bill on Monday, Prime Minister Narendra Modi said GST was “crucial” for ending tax terrorism besides reducing corruption and black money. While the PM may have breathed a sigh of relief, the trading community isn’t putting its feet up just yet. The economists are equally skeptical. [caption id=“attachment_2944052” align=“alignleft” width=“380”]  PTI[/caption] The reason is the duel between Kacha Bill and Pakka bill. The PM said in the Parliament, “The ‘kacha bill’ and ‘pakka bill’ system in our country has helped mobilise black money. GST will help put an end to this.” Though the trading community has hailed the passage of GST Bill, they strongly feel that they alone cannot be responsible for the circulation of kacha bill in the market. “There is a general perception that traders don’t issue pakka bill, which is wrong. There are instances where a trader didn’t give pakka bill to a customer, but in large number of cases customers avoid taking it, because they would have to pay tax at 12.5 percent rate on the goods they purchased. Even, government officials don’t take bills against the purchases they make, so as to avoid paying tax,” said Praveen Khandelwal, secretary general, Confederation of All India Trades (CAIT). Kacha bill versus pakka bill Kacha bill or temporary bill is the one issued by a trader to a customer on purchase of an item, say furniture, but it doesn’t reflect in the books of account of the trader. Thus he avoids paying income tax. This bill can be issued on a simple piece of paper or as an ‘estimate’. There is no record of the sale made. Pakka bill is the one which is issued on a proper bill and the same transaction is mentioned in the books of accounts. Record is maintained and the trader pays income tax. Why kacha bill? Despite being a dishonest transaction, customers still accept a kacha bill so as to avoid paying tax entirely. Instead of paying the bona fide 12.5 percent tax on goods purchased, they negotiate it at 5 percent and thus save paying 7.5 percent tax. On the other hand, the shopkeeper or the trader avoids paying income tax, as no mention about the transaction is recorded. It leads to generation of black money in huge quantum. “We completely agree with PM’s statement on the issue of tax terrorism and kacha bill. But, traders alone can’t be held responsible for this. The other factors responsible for generation of temporary bill are high rate of taxes, complex tax system, multiple administration having no accountability, unfettered discretionary powers, consumer avoids taking permanent bill, etc,” said Khandelwal. Kacha bill a disadvantage, claim traders The traders claim that the system of kacha bill has caused losses to honest traders due to uneven playing field and unhealthy competition. “A trader who doesn’t pay tax has no overhead cost; whereas an honest trader has to spend more on tax and other costs. Ultimately, the one who issues pakka bill and is honest in transactions, suffers due to unhealthy competition. The GST regime should ensure strict punishment for tax offenders, but at the same time the honest trader shouldn’t be harassed unlike now where ‘inspector raj’ thrives. Processes have to be simplified and there should be a mechanism of ombudsman in GST,” he adds. “Until we have high tax rates, harassment by tax inspectors and complex procedures, this system of kacha bill will persist. Prior to implementation of GST, the government should create awareness and provide information on the legal aspects of this new tax reform to traders through workshops. The government also has to ensure a mechanism on how petty retailers in rural areas, who work manually would deal with the e-system of GST,” added Navneet Agarwal, regional general secretary, Akhil Bharatiya Udyog Vyapar Mandal, Madhya Pradesh. Economists equally skeptical “It’s very difficult to prevent this trend of issuing fictitious bills. It’s a common practice with builders, who accept major portion of the price of a house in cash and no receipt is given to the consumer. Unless strict measures are taken to prevent black money generation, such practices will continue. Traders continue to remain out of tax net through kacha bill,” remarked Arun Kumar, economist and retired professor, Centre for Economic Studies and Planning, Jawaharlal Nehru University. “Even, computerisation can’t prevent fudging of accounts. We’ve seen it in India’s biggest accounting fraud Satyam case, where fictitious fixed deposits worth Rs 6,000 crore were created by manipulating the software. So, it can’t be claimed that the GST regime will completely stop black economy,” he added.