GST breather to boost economy: Analysts

The goods and services tax (GST) breather given to small and medium enterprises (SMEs) and exporters will address their liquidity issues, improve efficiencies and act as a shot-in-the-arm for the economy as a whole, analysts said.

The GST Council on Friday hiked the threshold turnover for the composition scheme that allows SMEs to pay 1-5 per cent tax without going through tedious formalities.

The government's move to relax IGST for six months and faster processing of refunds for exporters would address their liquidity issues and improve business efficiencies in the short-term, analysts at ratings agency Crisil said.

"Also, reducing compliance burden for SMEs would widen the tax base under GST," it said in a report.

The government has also eased the filing process for SMEs with a turnover of ~1.5 crore from monthly to quarterly. The turnover limit for availing the composition scheme has been hiked from ~75 lakh to ~1 crore, enabling SMEs to pay taxes at concessional rates.

Both these moves would widen the taxpayer base, according to Crisil.

The government had earlier mandated reverse charge mechanism under which large entities pay taxes on behalf of their supplies from unregistered SMEs, creating an additional tax burden on large entities. Hence, they were preferring not to route through unregistered SMEs.

"The latest GST Council meeting removed the reverse charge mechanism up to March 2018, which provides a short term relief to SME," Crisil added.

Industry experts also applauded these initiatives.

"With measures to ease liquidity for exporters, improving ease of compliances for small tax payers, deferment of certain onerous provisions such as e-way bill, reverse charge and rationalisation of rates including man-made yarns, the Council meeting is a shotin-the-arm for the economy," said Priyajit Ghosh, partnerindirect taxes at KPMG India.

The government has also provided some measures to give liquidity respite to exporters, which has come as a welcome move by way of speedier refunds of input credits.

"The levy of IGST has been exempted for six months for exporters on imports until further clarity is provided by government. This indeed benefits various exporters who were required to pay IGST without proper justification for such levy," Rashmi Deshpande of Khaitan & Co said.