In recognition of the teething troubles in implementing the goods and services tax (GST) for small businesses, a ministerial panel has recommended lowering the tax for such units. The move is in anticipation of better compliance from these businesses who have been claiming a high cost of implementation of the tax.
The panels recommendation will now have to be ratified by the GST Council, which is slated to meet on 9-10 November.
In a meeting on Sunday, the recommendation was for a new flat tax rate of 1% under the composition scheme for traders, manufacturers and restaurants, as against the previous rates of 1%, 2% and 5% respectively. The panel has also recommended increasing the ceiling for eligibility to enterprises with annual revenue of less than Rs 1.5 crore from Rs 1 crore currently. The GST council had earlier raised the ceiling from Rs 75 lakh to Rs 1 crore in October. Establishments can now sign up for the scheme by 31 March 2018, an extended deadline provided by the panel.
The option of paying a single tax on revenue of all goods, termed the composition scheme, was specially devised for small businesses and its purpose was primarily to make GST compliance easy. According the latest estimates, only a sixth of the small businesses of the estimated 9.1 million registered GST assesses.
Giving the small businesses an option and reduce compliance costs, the ministerial panel has recommended that small traders be allowed to pay either 1% of their revenue of taxable goods or a flat 0.5% tax on the total turnover (without bifurcating non-taxable goods).
The panel has not decided on allowing the small firms in the composition scheme to avail of input tax credits on business-to-business transactions as it could not reach a consensus. This matter will again be examined by the GST council before a decision is taken. The panel also favoured allowing those covered under the composition scheme to supply goods across state borders.
The members of the panel are Assam finance minister Himanta Biswa Sarma, Bihar deputy chief minister Sushil Modi, Jammu and Kashmir finance minister Haseeb Drabu, Punjab finance minister Manpreet Singh Badal and Chhattisgarh minister of commercial taxes Amar Agrawal.
Since the implementation of GST, its council has tried to address onerous implementation issues on the new unified tax which covers both manufacturing and services businesses. In early October, it slashed rates on 27 items and eased the frequency of filing returns to four every year from twelve for firms with an annual turnover of less than Rs 1.5 crore.
Earlier this month, the ministerial panel considered a proposal to do away with the distinction between air-conditioned and non-airconditioned restaurants, as they were taxed at 12% and 18% respectively. Both are to be taxed at 12%. “The group of ministers decided that input tax credit should be available to air-conditioned restaurants and that these could be taxed at 12% (against 18% now). However, considering the revenue implications, the GST Council could take a call on the tax slab,” said Sarma, Assam finance minister and member of the panel.
More changes are on the anvil, especially in terms of specific tax rates. In an interview earlier this month to Press Trust of India, revenue secretary Hasmukh Adhia said that the government will take further steps to ease the compliance burden on small and medium enterprises. "Wherever we find there is a big burden on small and medium businesses and on the common man, if we bring it down, there will be better compliance.”
Since the implementation of demonetisation a year ago and later GST this year, small traders who operated in largely in the cash economy have been hit hard as the two events hurt the fundamental proposition of their businesses. These businesses also form the core constituency of the ruling BJP party, which has been trying hard to formalise the economy. In its effort to sweeten the pill for small business, it is expected the government will benefit too as sentiment picks up on better business prospects for this section.