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Understanding link between Demonetization and GST

Krishan Singla 
on 09 November 2017

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Ever thought: there is a strong link between demonetization and GST. Both are towards restraining black money generation, promotion of accountability, business promotion, use of digitization money.

Without demonetization, success of GST would have been flawed. In case we are facing less teething problems in comparison to other countries where it was implemented, it is due to its follow up with demonetization. Demonstration forced the people to deal with banks while depositing money in banks, which prompted them to spend through banking channels. It has also boosted the people to trade on line because of their surplus money now stands deposited in the banks.

Wherever GST was implemented, in initial year inflation, distrust among citizens and discomfort among business created but later on coming years when things settled down, growth was everywhere. But India is different. In India GST is followed by demonetization which is unprecedented anywhere in the world so the result will be. I think sooner than later the India will see tremendous growth because of two factors; one citizens were mentally got prepared to spend legally and through banking channels second business were prepared and forced by circumstances to follow suit and be prepared mentally to come under system to progress fast and consistent. Demonetization helped and mentally prepared the businesses to come under the system to reap the benefits of simple and systematic tax that is GST. In addition to demonetization , reverse charge mechanism on the other side under GST compelled business men to follow suit and get registered to boost their business.

One thing which most of the people are not looking is that business which are used to do work out of the system, will be compelled to come under the system to expand their businesses as they will have to be tax compliant to come under the system, otherwise they will be forced to remain outside the main system and not able to expand the business.

It is due to reverse charges mechanism, which is very unique concept , that brought in the GST system due to which every registered dealer will feel comfortable only to deal with other registered dealer. It is a scheme of GST that unregistered dealer are presumed to sell the goods and services only to the direct consumers who is not to sell the material to others or use in the business. Although for smooth implementation of GST reverse mechanism is postponed upto 31 March 2018, which will be brought into effect afterwards.

Reverse mechanism is made on the presumption that generally business tends to misuse the process of law, otherwise there is no need of reverse mechanism ; first to charge GST on supply received from unregistered dealer then claim input tax. It is only because of the fact that otherwise, the business may tend to book the entries of expenditure from unregistered dealers on their sweet will to manipulate the profit because then there is no check of bills from unregistered dealers.

Because of reverse mechanism, in case a registered dealer books a entry then he has to cough with GST then claim the input tax only by showing that, that product is used for business purpose and not otherwise . And in case he is not pay GST on the supply from unregistered dealer then he need not to show its use in business as he is not to claim any input tax on that supply.

Thus I think demonetization and reverse mechanism under GST will definitively boost business and India will see tremendous growth never before witnessed by India.

KEEP IT UP INDIA


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