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Bengaluru, once hailed as a model for Indias digital payment revolution, is witnessing a significant setback. Thousands of small vendors are abandoning digital payment systems like UPI and reverting to cash transactions, highlighting the unintended consequences of aggressive tax enforcement on small businesses.
The issue stems from the recent issuance of GST notices by the Karnataka Commercial Taxes Department to approximately 14,000 unregistered traders. These traders, primarily small vendors such as chai stalls, street food carts, and corner shops, had been accepting digital payments since 2021.
The problem arose when their accumulated UPI transactions exceeded the GST turnover limits: ₹40 lakhs for goods and ₹20 lakhs for services. Many vendors, even those with daily earnings of only ₹2,000-₹3,000, found themselves facing tax demands in the lakhs.
The Karnataka Commercial Taxes Department claims these notices were issued only to those exceeding the legal threshold and urged traders to respond with proper records or register under the simplified GST composition scheme.
However, vendors expressed deep concern, fearing not only tax demands but also potential harassment and eviction by civic bodies. This fear has led to widespread rejection of digital payment systems, with many vendors displaying signs explicitly stating "No UPI, only cash."
Legal experts weigh in, arguing that not all digital receipts are taxable, and the department must provide sufficient evidence before demanding payment. They call for fairer hearings and less aggressive enforcement, emphasising the importance of clear communication and support for small businesses navigating the complexities of GST compliance.
The situation underlines the need for a more nuanced approach to digital tax enforcement, one that balances revenue collection with the encouragement of digital adoption and the protection of small businesses livelihoods.
The controversy also sparked debate on the practicality of the existing GST thresholds for small vendors. Experts questioned whether a daily turnover exceeding ₹10,959 (for goods) or ₹5,480 (for services), as implied by the annual thresholds, is realistic for most street vendors.
