Reasons why Deferment of Reverse charge is not helping small businesses

Shift of business from small to large business owners

Larger companies have started making more money on the cost of smaller businesses.  Some small businesses are selling less and that is why large store are selling more.

Reason behind this shift

One of the biggest reason for this was the reverse charge mechanism (RCM).

What is Reverse charge mechanism(RCM)?

According to GST law, reverse charge means the liability to pay tax is on the recipient of the supply of goods or services instead of the supplier of such goods or services in respect of notified categories of goods and services. 

What exactly is the problem in buying from unregistered dealers?

The problem is the time required to comply and the cost of compliance is restrictive.  Companies accounts department  have asked the purchases department to buy only from a registered dealer so that they do not have to manage another set of compliances with un-registered dealers.

Limit of Rs.5000 per day is not helping small unregistered dealers.

As per GST law if you are dealing with unregistered suppliers and making payments till Rs. 5,000 a day, reverse charge does not apply. However, it is very cumbersome for accounts department of any firm to keep a track of all expenses every day and ensuring it stays within the Rs 5000 limit. Even for very small expenses , they do not buy it from a local shop, but purchase it from a bigger retailer that has GST registration for easier compliance and to avoid RCM.

Companies work with a pattern and they don't change it for temporary phase

In the 22nd GST Council meet, Reverse Charge Mechanism on purchase from unregistered dealers has been deferred until March, 31 2018, but many are not convinced. This looks like a temporary decision and companies see no reason to go back to the old practices. In last four months they have stopped buying from unregistered firms and they will continue doing so. Even small products like computer equipments, coffee, cleaning equipments are all being purchased from big registered dealers.

Above points conclude that deferment of reverse charge is not going to make much difference for small businesses and govt. will have to come up with some better proposals for the SME sector.