Aggressive Tax Enforcement May Undermine GST Formalisation Gains: SBI

New Delhi, Jul 23 (KNN) The State Bank of India (SBI) has issued a cautionary report warning that overly aggressive tax enforcement measures targeting small businesses could reverse the progress achieved through formalisation under the Goods and Services Tax system.

The bank's research note highlighted concerns that such enforcement actions may inadvertently push informal economic players back into cash-based transactions.

The report referenced a specific case from Karnataka to illustrate these concerns, noting that numerous small traders and shopkeepers in Bengaluru have received what the bank described as disproportionately high tax notices.

These notices were reportedly issued primarily based on digital transaction records, including Unified Payments Interface transactions that leave electronic footprints.

While acknowledging the legitimate intent behind enhanced tax enforcement, SBI emphasised the need for a balanced approach.

The bank stated that efforts to capture a more accurate picture of economic activity and reduce tax evasion are commendable objectives, but cautioned that such enforcement must be implemented with appropriate sensitivity to avoid counterproductive outcomes.

The research note warned that excessive scrutiny of small businesses could drive them back into informal, cash-based economic activities, thereby undermining the fundamental purpose of the formalisation process that GST was designed to achieve.

This reversal would represent a significant setback to the tax system's broader objectives.

SBI concluded its analysis by emphasising that inclusivity must remain a fundamental principle in GST's continued development.

The bank argued that while GST has successfully established a foundation for greater accountability and improved revenue generation, its long-term effectiveness will ultimately depend on ensuring that the system empowers all stakeholders, particularly small traders, rather than penalising them through disproportionate enforcement measures.

(KNN Bureau)