In its 32nd meeting on Thursday, 10th January 2019, the GST Council will likely consider several proposals aimed at providing relief to small taxpayers — a segment that is believed to be struggling after losing exemptions enjoyed by them in the pre-GST regime (VAT regime).
One of the major proposals that are likely to be approved by the Council is raising the annual revenue threshold for GST to Rs. 75.00 lakh from Rs. 20.00 lakh currently. The group of ministers (GoM) had also considered a proposal to partially refund taxes paid by these firms as relief measures but decided that raising exemptions was a more practical solution.
After its last meeting held in December, the Council had expressed concern over the lack of smaller service providers not opting for GST registration, which was attributed to a relatively higher tax rate of 18% and heavy compliance. To correct this, the GST Council is also likely to approve a gentle composition scheme having quarterly returns and nominal tax rate, for such taxpayers with a revenue threshold of up to Rs 100 lakh. Such a scheme already exists for manufacturers and traders but also given that the value-added in the service sector can be quite large, the same was not made available to the service sector until now.
Archit Gupta, founder, and CEO of ClearTax said: “Composition scheme for small service providers and quarterly payment of taxes will improve compliance and reduce the effort required by them significantly. The GST Council must continue to focus the ITC claim process and simplification of GST returns as they are the cornerstones for GST success.”
Finance minister Arun Jaitley had also referred lower-than-expected growth in the real-estate sector as a reason for subdued GST collections this financial year. The proposal before the Council is to reduce GST rates of under-construction housing units to 5% from 12% currently and deny the builders input tax credit, which is not being passed to users effectively anyway, Jaitley added. At present, the GST is levied at 12% on payments made for under-construction property or ready-to-move-in flats where completion certificate has not been issued at the time of sale. GST is not levied on properties having a completion certificate.
Although the higher overall GST threshold limit would allow nearly half of nearly 1.2 crore GST registrant to go out of tax net, the higher threshold limit is unlikely to either bring down taxpayers base or revenue. Even as the mandatory lower limit for a firm to register for GST is Rs 20.00 lakh, more than half of the firms registered are those with turnover below that level. Though these sub-Rs 10 lakh entities contribute just 1.5% of the total GST revenue, they like to be in the tax chain for the benefit of the input tax credit and to retain large businesses (which are in the GST chain) as their buyers. Similarly, a quarter of the firms registered with the GST Network (GSTN) have turnover between Rs 20 lakh and Rs 1 crore, their share in the
government’s total GST revenue mop-up is just 5%.
Additionally, the GoM which was tasked with examining the option of raising revenue for flood relief in Kerala via a Cess has proposed that the affected state should be allowed to levy a higher SGST to generate the extra revenue for relief and reconstruction in the state. The Council will take a call on this issue as well as a pan-India cess was not favored by many states.