GSTNEWS

Ministers propose to shield small units (MSMEs) from GST burden

A group of ministers (GoM) has recommended several steps for making life easier for small businesses (MSMEs) under goods and services tax (GST), including backing a plan for raising the threshold limit for registration, while another panel has cleared the decks for levying state-specific calamity cess, sparing the burden on consumers across the country. A ministerial group on MSMEs, headed by Junior Finance Minister Shiv Pratap Shukla, on Sunday, supported the proposal to increase the registration threshold limit
beyond an annual turnover of Rs 20 lakh but could not agree on the new limit, leaving the decision of threshold limit to the GST Council, headed by Finance Minister (FM) Arun Jaitley, which is scheduled to meet later this week.

While the law committee had advocated doubling the threshold limit to Rs 40 lakhs which was favored by the Government of Delhi and Government of Bihar was seeking an increase of Rs 10 lakh in the aforesaid limit. Besides, Bihar deputy CM Sushil Modi has also floated a proposal for a flat payment for businesses with an annual turnover of Rs 50-75 lakh, a facility that was available under the value-added tax (VAT) regime. A higher threshold limit will put several small businesses out of the GST net and address the oft-repeated concerns about unnecessary compliance burden ahead of this summer’s general elections. But it will also make the system more prone to leakages as several businesses will not be tracked by the government.

The panel of ministers has, however, backed a simpler facility for a ‘composition’ scheme with a flat rate of 5% and more-simplified returns for service providers with a turnover limit of Rs 50 lakh. This plan was rejected earlier because of the fear of misuse. Currently, the composition scheme is available only to small manufacturers and traders, where the limit is to be increased from Rs 1 crore to Rs 1.5 crore and the group of ministers (GoM) has suggested that these businesses be allowed to file annual returns instead of making quarterly filings. However, they will be required to make quarterly tax payments with the challan capturing some of the details.

Instead of agreeing to an increase in the GST rate nationwide, the panel agreed to suggest a cess that will be levied by the state concerned but will need specific clearance from the GST Council. The government of Kerala had asked the GST Council for levying cess to fund rehabilitation work. The group of ministers (GoM) has recommended to the Council that Kerala is allowed to levy 1% cess for two years Sushil Modi told reporters after the meeting. The group of ministers (GoM) has also recommended amendments to the Fiscal Responsibility and Budget Management Act to increase the borrowing limit for funding natural calamity-related spending by the states.

There was also a suggestion to have a permanent cess for natural calamities which was rejected by the ministerial panel (GoM). The proposal came as the Central government is seeing a significant dip in the collection from the national calamity contingency duty, imposed on several products as many of the items are now covered under GST. As a result, the annual collection in the kitty is projected to reduce to Rs 2,500 crore from around Rs 5,700 crore in 2015-16.

With a smaller treasury, the Centre would now have to allocate funds for the purpose. The stand taken by the group of ministers (GoM) addresses concerns of several states that did not want their consumers to bear the burden of a state-specific natural calamity. Besides, there would have been issues related to the distribution of the taxes that were collected through a higher rate of GST. Ministers thought that states would themselves be prudent in imposing a cess as they would not want consumers to be unnecessarily burdened due to tax.

 

TaxClue Team

Taxclue is an online news portal for reporting all news, articles, judgments, Circulars, orders, and notifications relating to various corporate and tax laws in India. We use the tagline ‘Simplifying Laws’. Our mission is to Simplify the Laws and make people aware of their rights and duties in relation to tax matters in order to equip them to participate in nation-building. TaxClue is a team of young professionals. We started in December 2016 with the mission of knowledge sharing. TaxClue would like to hear your valuable suggestion. Please write to our editorial team at [email protected]

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