Relief for exporters, small businesses on the cards
The Goods and Services Tax (GST) Council, in its upcoming meeting on Friday, is likely to give a major relief to exporters as well as small and medium enterprises (SMEs).
These segments have been affected the most by the new indirect tax regime, which has depressed the economic growth numbers in the first quarter of the current financial year because of destocking on account of uncertainties before the GST was introduced on July 1.
The meeting comes after three most powerful persons in the current political dispensation — Prime Minister Narendra Modi, Bharatiya Janata Party (BJP) President Amit Shah, and Finance Minister Arun Jaitley — huddled together to discuss economic and political issues. Shah cut short his visit to Kerala to attend the meeting. Jaitley also skipped a World Economic Forum event in Delhi to attend the meeting.
Growth declined to 5.7 per cent, the lowest in any quarter since the BJP came to power three years ago.
The Council is likely to make filing returns for SMEs easier. Those with an annual turnover of up to ~1.5 crore will be allowed to file quarterly returns.
Also, the composition scheme, which allows a flat rate and easy compliance, may be relaxed to rope in those with an annual turnover of up to ~1 crore against the current ~75 lakh. About 540,000 taxpayers opted for the scheme under the new window of about a fortnight till September 30, compared to one million as of August 16 (the earlier deadline). The number of taxpayers under the composition scheme, at 1.5 million, is about a sixth of the 8.9 million assessees under the GST. Under the scheme, a trader pays the GST at one per cent, a manufacturer at two per cent and a restaurant owner at 5 per cent, but they are not allowed input tax credit. They are permitted to file quarterly returns. The meeting is likely to discuss a report of a committee, headed by Revenue Secretary Hasmukh Adhia, to address the problems of exporters.
The meeting comes after PM Narendra Modi, BJP chief Amit Shah, and Finance Minister Arun Jaitley huddled together to discuss economic and political issues
Based on that the Council is likely to recommend some relaxation for them so that their working capital, locked up in refunds, is released, according to officials. Also, the Central Board of Excise and Customs will inform the Council that it is ready to release integrated goods and services tax (IGST) refunds to exporters from October 10.
The government has allowed exporters to furnish letters of undertaking (LUT) instead of bonds, which will ease the compliance burden and stop the locking up of capital.
Exporters say more than ~65,000 crore of capital is stuck because they have to first pay the IGST and then file for reimbursement paid on imports that are accounted for in exports. This was not the case in the earlier tax regime. Two months after the roll-out of the GST regime, the order books of exporters are said to have taken a hit, with estimates pegging the impact at up to 15 per cent across industries and product categories.
According to an assessment by the Federation of Indian Export Organisations (FIEO), the large drop was for export orders that were meant to be delivered until October. Beyond October, this may rise to 20 per cent, as exports during Christmas and New Year may be affected.
The share of exports in GDP declined to 18.2 per cent in the first quarter of the current financial year from 19.3 per cent a year ago. After growing in single digits in the previous three months, exports in August rose by 10.29 per cent, up from 3.94 per cent in July. But exporters and economists are sure that the coming months would prove to be the real challenge for merchandise exports.
Besides, the Centre is likely to release ~8,500 crore to states as compensation for losses incurred by them in the first two months of the GST rollout. This will come up for discussion during the meeting. The cess to be distributed by the Centre to states would be about more than half of the ~15,021 crore collected as compensation cess during July and August, ~7,198 crore and ~7,823 crore, respectively.
“The compensation demand by states is lower than the cess collected. This indicates that the scale of revenue loss feared by states is much lower. However, these are early days. In a few months, the actual picture will emerge,” said a government official.
The government’s overall GST collection stood at close to ~95,000 crore in July, and ~90,669 crore in August.
Neither BJP sources nor officials were willing to comment on the details of the meeting (attended by Modi, Jaitley, and Shah). However, sources said they discussed GST hassles for exporters and SMEs, besides political issues. Modi is scheduled to be in pollbound Gujarat on October 7 and 8. Meanwhile, traders in Surat met Adhia on Wednesday.