SMES may get GST respite soon

Goods and ser­vices tax coun­cil is set to fur­ther ease com­pli­ance bur­den for small busi­nesses at its meet­ing later this month


With the gen­eral elec­tion due by May, the Goods and Ser­vices Tax (GST) Coun­cil is set to fur­ther ease the com­pli­ance bur­den for small busi­nesses at its meet­ing later this month.

The coun­cil, chaired by Union fi­nance min­is­ter Arun Jait­ley, will con­sider rais­ing the sales thresh­old for com­pul­sory GST reg­is­tra­tion from ₹ 20 lakh to any­where be­tween ₹ 50 lakh and ₹ 75 lakh, one per­son privy to the de­vel­op­ment said on con­di­tion of anonymity. A meet­ing of the coun­cil is likely to be con­vened by mid-jan­uary to con­sider the pro­posal that is based on the ex­pe­ri­ence gained since the tax re­form was im­ple­mented in July 2017.

Prime Min­is­ter Naren­dra Modi, in an in­ter­view to news agency ANI on Tues­day, said the cen­tral gov­ern­ment wanted the thresh­old to be raised to ₹ 75 lakh. He added that the cen­tre also pro­posed to cut the GST rate on un­der-con­struc­tion flats from 12% to 5% . The pro­pos­als would be placed be­fore the coun­cil as soon as a state min­is­ters’ panel gave a re­port on the sub­ject, he said.

At its last meet­ing on 22 De­cem­ber, the GST Coun­cil had de­cided to let a min­is­te­rial panel re­view the rev­enue thresh­old for GST reg­is­tra­tion, tax rate on un­der­con­struc­tion flats and the fea­si­bil­ity of a con­ces­sional tax scheme for small ser­vice providers.

Modi said that the gov­ern­ment was aware of the hard­ships faced by small and medium en­ter­prises (SMES).

“What­ever dif­fi­cul­ties faced by MSMES that comes to our no­tice, are placed be­fore GST Coun­cil. Our re­solve is to sim­plify GST and give ben­e­fits to con­sumers. The process of sim­pli­fy­ing and ra­tio­nal­iz­ing GST will con- tinue,” he said.

GST had re­duced the tax bur­den on a large num­ber of com­modi­ties, Modi added. “We are com­mit­ted to hear­ing all is­sues be­ing faced by peo­ple and plac­ing them in front of the GST Coun­cil. GST has to be sim­ple and con­sumer-friendly. Work is con­stantly go­ing on in this di­rec­tion,” he said.

The move to raise the thresh­old for GST reg­is­tra­tion is sig­nif­i­cant con­sid­er­ing that small busi­nesses have been hit by the Novem­ber 2016 ban on high-value banknotes, busi­ness dis­rup­tion in the early days of GST im­ple­men­ta­tion and a credit squeeze in re­cent months.

The idea of rais­ing the bar for com­pul­sory reg­is­tra­tion comes in the wake of ex­pe­ri­ence that many small firms with sales be­low ₹ 20 lakh have signed up for GST in or­der to be part of the value chain, which is im­por­tant for re­tain­ing large cus­tomers. Also, the rev­enue loss from rais­ing the sales thresh­old may not be sig­nif­i­cant. A sec­ond per­son privy to the dis­cus­sions within the coun­cil said the rev­enue im­pact from a higher thresh­old of ₹ 50-75 lakh could be ₹ 800-1,400 crore. So far, all big GST re­lief given to SMES was based on the premise that the bulk of the tax re­ceipts comes from large tax­pay­ers.

How­ever, the ad­van­tage of a low sales thresh­old for GST reg­is­tra­tion is that it helps in formalization of a part of the econ­omy that oth­er­wise re­mains without reg­is­tra­tion for in­di­rect tax or for labour wel­fare schemes un­der the Em­ploy­ees’ Prov­i­dent Fund Or­ga­ni­za­tion. The ₹ 20 lakh thresh­old helped bring a large num­ber of small busi­nesses into the GST net as the tax ex­emp­tion limit prior to 1 July 2017 for cen­tral ex­cise duty was ₹ 1.5 crore in an­nual sales.

The tax re­form has helped the num­ber of in­di­rect tax­pay­ers in­crease by 3.4 mil­lion, ac­cord­ing to the Eco­nomic Sur­vey of FY17-18. A higher thresh­old may open the win­dow for some of those tax­pay­ers to go out of reg­is­tra­tion although those find­ing merit in re­main­ing part of the sys­tem will stay.

“While there is a need to sim­plify GST fur­ther for SMES and an en­hanced thresh­old may be a step in that di­rec­tion, it needs to be borne in mind that the tax­pay­ers base gets ex­panded with a lower thresh­old,” said M.S. Mani, part­ner, Deloitte In­dia.

With na­tional polls ap­proach­ing, the Modi gov­ern­ment has taken sev­eral steps to ben­e­fit con­sumers and small busi­nesses. Th­ese in­clude schemes an­nounced to let small firms ac­cess quick fi­nance, tax re­lief to Na­tional Pen­sion Sys­tem sub­scribers, GST rate cuts on 22 items, ex­ten­sion of due date for busi­nesses to file var­i­ous re­turn forms, in­cen­tives for onion ex­porters and tight­en­ing of for­eign di­rect in­vest­ment norms on on­line mar­ket­places to pro­tect small traders.

A low sales thresh­old for GST reg­is­tra­tion helps in formalization of a part of the econ­omy

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