Karnataka’s UPI System Under Strain as Tax Notices Plague Small Businesses
The adoption of digital payments via the Unified Payments Interface (UPI) in Karnataka seems to be running into big problems, as state tax authorities have reportedly issued stringent notices to a wide array of small businesses, leading many to abandon digital transactions in favor of cash.
Bakeries, tea stalls, vegetable vendors, flower shops, and milk sellers across Karnataka are among those who have received notices demanding lakhs of rupees in taxes. While the taxes themselves are not newly imposed and exist nationwide, the sudden and aggressive enforcement by Karnataka’s tax department has triggered widespread concern and a pushback against UPI.
This move has been met with widespread dismay among traders, who allege that the state government, grappling with financial strains, is resorting to coercive tactics to shore up revenue.
“We are getting notices demanding lakhs of rupees,” lamented a bakery owner in Bengaluru, who wished to remain anonymous. “Some have received demands for as much as 50 lakhs or even 52 lakhs. This isn’t a new tax, it’s been there, but the sudden, aggressive enforcement is crippling us.”
“We are getting notices demanding lakhs of rupees,” lamented a bakery owner in Bengaluru, who wished to remain anonymous. “Some have received demands for as much as 50 lakhs or even 52 lakhs. This isn’t a new tax, it’s been there, but the sudden, aggressive enforcement is crippling us.”
The primary concern for these small traders is the perceived link between digital transactions and increased tax scrutiny. Many small businesses, which previously embraced UPI for its ease of use and customer convenience, are now hesitant. “If we accept UPI, every transaction is recorded, making us vulnerable to these massive tax demands,” explained a tea stall owner. “Many of us have now removed our QR codes and are asking for cash payments instead.”
This shift is creating inconvenience for customers who have grown accustomed to the ubiquitous digital payment option. “Almost 95% of our customers use PhonePe, Google Pay, or Paytm,” a milk vendor stated. “Now that we’re asking for cash, it’s a huge disruption for them and for us.”
Critics argue that this heavy-handed approach by the tax authorities contradicts the state government’s stated commitment to the welfare of the poor and small entrepreneurs. “The Chief Minister talks about the poor, but his administration is putting immense pressure on them through these notices,” a prominent city resident and commentator noted. “This is not just about collecting money; it’s about making officers meet targets, creating a climate of fear.”
The traders’ union has announced plans to protest the new enforcement drive. From July 22nd to 23rd, milk, cigarette, condiment, and bakery sales are expected to see disruptions. A larger protest involving families of traders is scheduled for July 25th, demanding immediate relief and simplification of tax processes.
While the taxes in question are part of the Goods and Services Tax (GST) framework, a nationwide levy, traders in Karnataka feel particularly targeted by the current enforcement drive. “This GST system, with its complex forms and regulations, is a huge burden for small businesses,” expressed another trader, referring to the system as “Harsh Punishment.”
Affected traders are calling on the state government to intervene, urging the Chief Minister to address their grievances. They propose that the government consider streamlining the tax collection process, simplifying compliance for small businesses, or even petitioning the GST Council to re-evaluate tax rates for essential food items and small-scale operations.
“We are forced to collect this tax from the people,” a trader highlighted. “If the government can simplify it, they should. Otherwise, this situation will only lead to more harassment and force us underground or out of business.”
The situation underscores a growing tension between the state’s revenue collection goals and the practical challenges faced by its vast network of small businesses, with the popular UPI system caught in the crossfire. As protests loom, all eyes are on the Karnataka government to address the traders’ concerns and prevent further disruption to both commerce and digital payment adoption.
Karnataka’s Nandini Milk Vendors Threaten Statewide Shutdown Over ‘Burdensome Regulations,’ Allege Corruption
In a serious rise of issues, Nandini milk booth owners and traders across Karnataka have escalated their grievances against the state government and the Karnataka Milk Federation (KMF), threatening a widespread disruption of milk supply if their demands are not addressed. The traders accuse officials of imposing unfair burdens, mismanaging tax policies, and failing to provide adequate support, particularly regarding UPI payment issues and GST compliance.
The traders directly challenged the KMF and Chief Minister Siddaramaiah, who also holds the finance portfolio. “Oh, KMF, come with Siddaramaiah and do it, I will tell you,” a trader was quoted saying, daring the authorities to manage milk distribution without their cooperation.
A primary point of contention revolves around the application of taxes and financial burdens. Traders question why they are subjected to calculations and compliance when “there is no tax on milk.” They contend that the issue is not about money, but about fair distribution and clear policies.
UPI Payment Imbroglio and Allegations of Corruption
A major source of vexation is the reported confusion and financial strain related to UPI payments. Traders allege that they are being forced to spend exorbitant amounts, ranging from “20 to 40 lakh rupees,” potentially escalating to “60 lakhs with interest” or even “70 lakhs” and “one crore” in some cases. There are strong insinuations of corruption, with a representative questioning, “Who is in whose hands 60 lakhs, 70 lakhs now, one crore is in the hands of those who eat filth?” This points towards allegations of officials demanding bribes or imposing excessive fines related to UPI compliance.
Lack of Government Support and Accusations of Neglect
The traders slammed government officials for a severe lack of engagement and support. “In four years, you have not done a single seminar,” a representative lamented, highlighting the absence of educational initiatives to help traders understand complex policies. They further accused officials of causing immense hardship and debt. “It must be their fault, they hit their heads and ate it and you are the one who will take the debt,” was a stark statement, conveying the traders’ feeling of being unfairly burdened.
In a defiant stance, some traders declared, “We will not do it. We will not give it. They should follow the rules.” Furthermore, alarming suggestions emerged regarding potential strategies to circumvent new regulations, including emptying existing bank accounts and opening new ones to avoid scrutiny.
GST Confusion and Allegations of Misguided Advice
The discussion also veered into the complexities of Goods and Services Tax (GST). There were claims that some chartered accountants were advising traders to split their businesses into multiple entities, each with separate QR codes, to stay below tax thresholds. “The business party will be divided into four shops. If you put four QR codes, you will say that if they get caught, you will get 40 lakhs,” a trader revealed, exposing alleged tactics to evade tax limits.
The traders drew an analogy with small-scale vegetable and fruit vendors, arguing that if such businesses are exempt or find it impractical to issue bills, why should milk traders face such stringent requirements. “Which vegetable shop did he go to and say, ‘GST?'” a trader questioned, underscoring the perceived impracticality for many small businesses. The confusion surrounding GST’s implementation, which came into force nationwide on July 1, 2017, was also evident, with traders questioning who ultimately benefits from the collected tax.
The collective discontent signals a potential crisis for Karnataka’s vital Nandini milk supply chain if the government fails to engage with the traders and address their deeply rooted grievances. The ball is now in the state government’s court to respond to these serious allegations and avert a potential statewide milk shortage.
GST Storm Brews in Karnataka: Small Businesses Reel Under Sudden Tax Notices & Retrospective Demands
One prominent example cited by a frustrated trader involves the supply chain for dairy giant KMF Mysore. “We supply ingredients worth 40 lakh rupees annually to KMF Mysore. They pack the final product. Why should we pay GST for supplying ingredients? This isn’t a good story; the packed food should be taxed,” a supplier lamented, arguing that their role is merely providing raw materials, not a service that warrants GST. This particular case points to a broader confusion over the distinction between B2B transactions for raw materials and the final consumer product.
Another point of contention is the turnover threshold for mandatory GST registration. While some traders noted a 20 lakh rupee threshold, others mentioned 40 lakh, indicating a lack of clarity that complicates compliance for small enterprises. “They’ve suddenly made registration mandatory if you’ve done 20 lakh (turnover),” a trader expressed, highlighting the abruptness.
Retrospective Notices and Impractical Demands
Perhaps the most infuriating aspect for many is the issuance of notices with retrospective effect. “Since 2021, authorities are giving notices to pay tax with interest on past transactions,” revealed a distressed trader. This backdated enforcement is proving particularly challenging, as businesses may not have accounted for these taxes at the time of transaction.
The discussion also touched upon the varying GST rates for different items, leading to further confusion. While packed snacks like “Kurukure” attract a 5% GST, the conversation highlighted a general belief that essential items like vegetables, fruits, milk, curd, and bread are exempt. However, this belief is being challenged on the ground. “Now they have given tax notices to the vegetable shop too,” a vendor exclaimed, illustrating the unpredictable nature of the crackdown.
The Bill Dilemma and Aggressive Targets
The demand for bills for every transaction, even small cash purchases at roadside stalls, further complicates matters. “Who will keep that bill? If an ordinary person goes to buy vegetables, who will bring the bill?” questioned a trader, pointing out the impracticality in a country where a significant portion of small-scale commerce operates on cash basis without formal billing. Comparisons were drawn to larger, organised retail in countries like the US and Singapore, where billing is standard, but these were deemed irrelevant for India’s vast informal sector.
Critics accuse the state and central governments of setting unrealistic tax collection targets, leading to an overly aggressive approach by tax officials. “It has increased six times, it has increased 76 times… logically it should rise by 6%, 4%, 7% automatically on the volume of business,” a commentator remarked, decrying the “unnaturally” high targets that force officials to pursue every possible avenue for revenue.
While acknowledging that “no country can run without taxes” and that “it has to be collected,” traders and public commentators alike are calling for a more “logical” and transparent approach to taxation. “There should be a logic to it. Food items should be logical in all matters,” urged one voice, reflecting the sentiment that the current enforcement lacks fairness and understanding of ground realities.
The escalating tension between tax authorities and the small business community signals a growing need for greater clarity, communication, and perhaps a re-evaluation of current tax policies to ensure both revenue generation and the sustainability of everyday livelihoods.
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