Reverse charge will increase burden on taxpayers

Hyderabad:The reverse charge mechanism, which will plug loopholes in the administration of the Goods and Services Tax (GST) regime and increase the government’s revenue, is likely to increase the burden on taxpayers.

The businesses which will be affected by this move, will be the ones registered under composition scheme, educational institutions, hospitals and similar establishments registered under GST who are not eligible for input tax credit.

The introduction of the reverse charge mechanism will shift the onus from seller to buyer on payment of GST. In case of rented premises, from the building owner to the tenant thereby reversing the burden. This, the government believes, will increase its revenue as the burden of paying 18 per cent GST on rent on commercial premises will be passed on to the consumers.

Explaining the issue, chartered accountant (CA) Mohd. Irshad Ahmed, chairman, GST and Customs Committee, FTCCI, said, “Earlier law allowed a property owner to do the tax planning thereby avoiding extra burden of GST on both the landlord and the tenant. But with the introduction of a reverse charge mechanism any registered business in the premises would have the responsibility of paying 18 per cent GST on the rent. Businesses who are eligible for ITC will not be affected but those who are not eligible are bound to pass on this burden to the consumers.”

Earlier the government did not have ready data on the rents exceeding Rs 20 lakhs but with the introduction of reverse charge mechanism, the data on rent payments would be readily available for the government for the collection of GST. The changes will increase the revenue but they may pose an additional burden on small businesses who are in the composition scheme as they are not eligible for input tax credit, he added.

Even petrol pumps, which are exempt under GST, will have registration as they sell lubricants on which GST applies. Such businesses if they were not paying GST on rent will have to pay GST going forward without input tax credit.

Responding to the issue, Vaddiraju Rakesh, state president of Aarogyasri Network Hospitals Association, said, “Burdening hospitals with additional costs by whatever name with an eye on additional revenue will ultimately burden the patients. The actual cost to treat a long bone fracture is Rs 1,09,000 but hospitals are doing it for Rs 30,000 and Rs 17,000 under Aarogyasri and Ayushman Bharat schemes respectively. To do this, doctors are giving services by cutting their own share in the costs. Burdening private entities which serve 75 per cent of the patients to garner revenue would make health care more unaffordable.”