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Mod Note : The effect of GST on car prices is being discussed in a separate thread. This thread should be used for non-automotive discussions.

Received SMS from SBI - My SBI credit card service tax to be increased from 15% to 18% from 1st July!

Expensive credit card bills in future.

That's the GST effect. Been getting emails and sms from many service providers.

Looks like cash is going to be king now especially after GST kicks in. I had gone to a local car accessories 'wala' to buy wiper blades for my car. He insisted on cash payment. Couple of months back I had bought floor mats from the same store and he had the card machine.
On inquiry he is saying that using the card machine involves lot of paper work and it is not "profitable" for him. So, there you go ... the entire cycle has begun again.

According to my understanding, that would not be the case, at least at the retail level or lets say B2C level. Reason being, the entire indirect tax component will be collected at source. So there would be no incentive for the B2C businesses to deal in cash. At least for sale of goods.
Sale of services will be an entirely different ball game where cash will continue to be king. (case in point - our FNG's who keep saying "Pay cash, no bill and avoid tax component"). Did I miss something?

A question asked of all Indian citizens by the PM yesterday:
"But, how is it possible that India had just 32 lakh taxpayers who declared an annual income of more than 10 lakh when there were 2 crore engineering and management graduates and 8 lakh doctors. When 2.18 crore people travelled abroad last year alone. That, he said, was India's bitter truth."

What is the root cause of this state of affairs? By root cause it means a prime cause, to which there is no further answer, if one asks a why to that one.

As in medicine and in any troubleshooting exercise, leaving root causes unresolved will only leave symptoms being attacked while the disease persists in the body/system. The Japanese troubleshooting technique of "ask 5 whys" is also based on this understanding. 5, because they believe that in the area of the shop floor, drilling down more than 5 layers is not necessary to get to the root cause of any perceived problem.

Any guesses as to the root cause for this bitter truth about India and Indians?

I don't have a problem with the question asked; in fact I too consider it as one of the most vexing questions in India today. But I do wish they present the data with sufficient authority. For example, the point: 32L taxpayers with income > 10L vs 2.18Cr people who traveled abroad sound prima facie preposterous but when we start thinking about...:

1. NRIs & foreign visitors who travel outside India but have no tax obligations here.

2. Indians with low or no taxable income going abroad (middle-east etc.) for low-paying jobs.

3. Senior citizens going abroad to meet their children and grandchildren, whose trips are often paid for by their (NRI) children.

4. Organized foreign tours that are extremely affordable (eg: Cox & Kings has a Rs. 6.5K Dubai 3N/4D tour on their site at the moment).

5. Work & business trips employees paid for by employer ("on-site" etc.).

6. Trade trips to Nepal & Bhutan across land borders.

...we will hopefully realise that maybe the number is quite representative.

And last not the least, in a family often only the main bread winner is counted among taxpayers but all members are counted for foreign trips, is it not? So 32L taxpayers represent maybe about 1.5Cr citizens.

Can't comment about doctors at all; and only a bit about engineers. They key thing to check is what percentage of 2Cr Engg/MBA folks actually earn > 10L, when the bulk of them are considered unemployable. I myself have interviewed people who admitted to selling credit cards in supermarkets or personal loans in roadside kiosks.

http://economictimes.indiatimes.com/...w/50703662.cms

http://www.firstpost.com/business/bl...y-2753940.html

My point isn't about the details quoted in the question asked, that would get us bogged down in the detail.

It is about the root cause for what is stated to be the bitter truth about Indians - that we don't pay taxes due. What is the root cause for that bitter truth?

Also, while I was and still am completely against the demonetisation move, the way in which it was done, and why I believe it was done, I don't have any problem with GST. I also don't have any problem with the concept of moving transactions to within the fold of the banking system so long as it is not being done in a manner that inconveniences every one, to put it mildly.

But a holier than thou preaching at us dishonest Indians does not go down well with me when that has not been identified to be the root cause of the state of affairs. I would go so far as to say that it is the pot calling the kettle black.

Instead of pontificating, an all out effort to mitigate the pain of the move to GST would better serve the nation. Along with a lot more cleaning up of itself, by GOI/state governments/bureaucracy. Do that, and swacchh Bharat will follow.

Yes, I got that and I did think about the larger question you posed. I broke it down into four questions:

1. Do Indians have a tendency to be tax non-payers when we ought to be paying it? [stay out of the taxation system altogether]

2. Do Indians who are tax payers pay less than what they ought to pay? [underpay taxes while being inside the taxation system]

(times two, for direct and indirect taxes).

I am collecting some data for this; but here is the first point that strikes me.

15% of India's GDP is from agriculture, but as per some reports as much as 70% of the population (55% of the workforce) depends on it. If we take the GDP as 120 LCr and population as 125 Cr, then that works out to PCY in agriculture as a measly Rs. 20K (120 LCr * 15% / 125 Cr * 70%). With that low income, for this cohort participation in the indirect taxation system would be impossible to contemplate.

I need to go out now; will continue on this later.

While I am all for the Demonetization, and the pain is almost gone. The very fact that the no of people in the tax base has dramatically increased speaks for itself.

As for GST, who is complaining, Jewelry, small traders, and textile. All notorious for avoiding taxes. What is bugging them even more is that once they start paying GST the data can be extrapolated to the earlier years.

I will make it easier for you by stipulating that we don't - as a group - pay all the taxes that are due. Bitter truth or not, I am not arguing that this statement is false.

Using the 5 why approach, what is the root cause of this?

Actually, No. GST is not fully understood, so people are making assumption that they can selectively stay outside the system. Unfortunately, that is not the case.

The end customer and retailer may opt for cash. What's happen after that? The retailer has to also buy from his distributor using cash. His distributor has to buy from his supplier using cash, who has to buy from the manufacturer using cash. The manufacturer has to buy from his vendors using cash... so on and so forth. You see how this is going? This is the only way to stay out of the taxation system.

GST system is designed to discourage dealing with unregistered B2B partners. It makes you responsible if your vendor/buyer is not registered under GST. So every legit business will avoid buying from unregistered vendor. Since you have to mention the GST number against every transaction, there is no escape. As a buyer if you don't produce your GST number, you end up paying the tax like an end user.

Now I have to ask everyone of my vendors to produce their GST number. If they don't have GST number, I'll have to pay their GST tax. Who wants that? So every company will avoid dealing with unregistered vendors of goods and services.

I still don't fully understand the system, but this is the gist I have so far.

Again I am not an expert in taxation or GST. But my understanding is that in GST, every party (except the end customer) who deals with goods have to "purchase" the product from the organisation higher in the value chain. And what ever tax dues are there, it has to be paid then and there. So it is like every party buys a product by paying the cost price+GST tax.

The pay by cash & no bill option was possible in scenarios where the vendor used to pay "Sales Tax" for the sales which is recorded in his books. An unrecorded transaction, is any way off the books and the Sales Tax folks would not be able to figure out much of that transaction.

And my understanding is that the current Govt. is hell bent on getting its dues from every single entity (which is good), so any scheme would have been vetted enough and more to identify potential leakage points.

Truth more often than not, will remain bitter for most of tax payers.
The statement from PM, "But, how is it possible that India had just 32 lakh taxpayers who declared ... abroad last year alone. That, he said, was India's bitter truth" would result into a vicious cycle of blame game : Govt. will blame citizens and citizens will blame government for not bringing corruption to negligible levels and delivering good governance. Tax payers deserve respect, services and there has to be certain amount of accountability on government's part.

Till there is increased level of accountability from government, there would be crowd avoiding tax. And I think any government is more than making up for it in form of indirect tax. Why not bring petrol and diesel in 28%GST+1% cess ? This is apart from the excise duties, VAT, etc. Governance has to increase, judicial system has to be effective, and lives of tax payers should be hassle free. Can any government offer this to tax payers ?

Just to cite an example, correct me if I am wrong here, is Air India. Government poured in money, and what is ROI ? I haven't seen GOI pouring such amount of money into a private organization to save jobs and the firm itself. In my view, that is mismanagement of tax payer's money. What example is government depicting to future tax payers ? Its inimical to their image. Govt. always has different views : Government employees and private sector employees. Why ? Imagine the amount of money dished out to Air India going into activities of nation building like infrastructure or defense or public healthcare. A visit to most government offices is more than enough for most tax payers to feel where their hard earned money goes and what is level or service being provided.

To sum it, expenditure of tax payers money is not reasonable in my view. Dont know others agree or not, but that is what I feel.
Government should lead by example in domains like expenditure, accountability for citizens well fare and actions not bereft of logic before stating what is bitter truth and questioning citizens.

After 31-March-17, we are eagerly awaiting honest data on how much black money was eroded. We are in Jul'17. Thats bitter truth too.

Usually tax payer isn't heard well in our nation it seems. We just have to believe what is given to us in the plate of hope, and think that things are improving. Thats it.

Back in 2014, I was expecting some concrete changes and actions; 3 years down the line, somehow I wonder if I was foolish enough for expecting such positive actions.

To me, demonetization has failed; it wasn't future proof and digital India is a distant dream too. And this time atleast I wont believe in changes giving results in longer run- I dont want anybody to sell me apps for digital transactions and dreams of a corruption free and tax payer friendly India.

Just to add on to this point with an example from my industry. A lot of private citizens do not really know about CGHS and its implications. As a Tax payer you need to pay high premiums and still not be able to afford the best of the treatment available. But as a government employee and hence a CGHS beneficiary, you are entitled to all these services free of cost. I have personally seen hundreds of cases where my hospital has sent bills in lakhs and in few cases crores for patients under CGHS. Can a private citizen really afford that even after having an insurance? Isn't this blatant misuse of tax payers money. I feel regardless of your job status, insurance for healthcare should be same for all.

One trait that all our government operations or companies share is waste of phenomenal proportions that will bankrupt any organisation that is not running on the money collected from us via taxes, in less than a year. There are so few exceptions to this that when the very rare case is unearthed, these are proclaimed to be diamonds.

Few people in government "service" work to the extent they do in the private sector and there are therefore many more people employed for delivering the same output as a consequence. Output that also is generally poor in quality for a double whammy because we pay the taxes that funds this activity and we also suffer the poor quality in return. Not because the people there are different than us, all are Indians like us; but there just isn't the motivation and therefore the need to do better with job security and pay increases guaranteed for all.

This, from honest operations. Corruption is another story altogether.