Faced with a widespread criticism for the faulty implementation of the GST regime, the central government on Friday was forced to make a host of changes including reducing the taxes for certain sectors and increasing turnover threshold for businesses.
The GST Council, that met on Friday, raised the turnover threshold to Rs 1 crore for businesses to avail of the composition scheme that allows them to pay 1-5 per cent tax without going through tedious formalities.
Union Finance Minister, while speaking to media after the meet, also announced slashing the rates on 27 items of common consumption, including roti, khakra, namkeens, stationery and man-made yarn, with most of them switched to five percent category. His announcement on Khakra, a Gujarati dish, was met with wide criticism with many calling the move a brazen attempt to extract electoral mileage in Gujarat elections, scheduled for December this year.
Jaitley also said that the businesses with up to Rs 1.5 crore turnover will have less formalities to complete after changes kick in. For example as opposed to filing three returns every month, they will now be expected to file quarterly return.
Jaitley said, “Traders having Rs. 1.5 crore turnover, which are approximately 90 per of assessees outside Composition Scheme, can now file quarterly return.”
The registered buyers from such small taxpayers will be eligible to avail an input tax credit on a monthly basis, reported IANS.
Jaitley also hinted that the government was open to revisiting the tax rate that people had to pay for eating out adding that a group of finance ministers would take a complete relook at the way the restaurants should be taxed.
Amidst debate on whether petroleum prices should be brought under the GST, Jaitley made it clear that they remain outside the ambit.
The Friday’s announcement came two days after Prime Minister Narendra Modi said that he had asked the GST Council to review and correct the shortcomings in the new tax scheme.
The tax rate on services, including government contracts involving large labor, job work services in relation to imitation jewelry and some food and food products, has been reduced from 12 percent to five percent.
Tax rate on man-made yarn was reduced to 12 percent from the current 18 percent, which is expected to provide relief to the textile industry. The textile industry in Gujarat has been on intermittent strikes protesting the adverse impact on their businesses following the GST roll-out in July. Jaitley appears to have addressed their grievances as the BJP simply can’t afford to face their anger in the all-important Gujarat elections.
Moreover, tax rate on zari work, unbranded namkeen, unbranded ayurvedic medicine, e-waste, paper waste, rubber waste and plastic waste was reduced to 5 percent.
The Council also increased the threshold for the Composition Scheme under which traders, manufacturers and restaurants have to pay a fixed tax rate of one, two and five percent respectively. The scheme can be availed only by those businesses that operate within state and do not have inter-state sales.
“For small and medium taxpayers, the tax burden is less but compliance is more. So the threshold has been now increased. So far 15.5 lakh taxpayers have opted for composition scheme,” Jaitley said.
A total of 72 lakh taxpayers have migrated from the old regime and 26 lakh new taxpayers have registered under the GST. About 95 percent of the revenue is collected only from large assessees, he said.
Taking stock of the exporters’ working capital that was blocked under the GST, thus affecting cash liquidity, the Council has decided to disburse their refunds through checks for July and August from Oct. 10 and Oct. 18 onwards, respectively.
A new electronic e-wallet system is being created for exporters, which will be implemented April 1, 2018. The exporters will receive some notional credit in their e-wallet as an advance. They will pay their tax and the refund will be offset within the wallet. A technology company will be allotted the task of developing the e-wallets for exporters.
Until then, exporters will have to pay nominal GST of 0.1 percent for procuring goods from domestic suppliers for export.
The Council decided to form a group of finance ministers to discuss issues including allowing inter-state traders under composition scheme, reducing GST on restaurants and exempting zero rated goods in calculation of turnover. The GOM will have to submit its report within a period of two weeks.
The E-way bill, which allows for the seamless movement of goods worth over Rs. 50,000, is likely to be implemented 1 April, 2018.
The system shall be introduced in a staggered manner with effect Jan. 1, 2018 and will be rolled out nationwide effective April 1, to give trade and industry more time to acclimatize.
The reverse charge mechanism has been deferred until Aug. 31, 2018. Under the reverse charge mechanism, if a registered trader buys goods from an unregistered supplier, the compliance of the unregistered buyer is the responsibility of the registered trader.
“The reverse charge mechanism will be reviewed by a committee of experts. This will benefit small businesses and substantially reduce compliance costs,” Jaitley said.
Presently, anyone making inter-state taxable supplies, except inter-state job workers, is compulsorily required to register, irrespective of turnover. It has now been decided to exempt those service providers whose annual aggregate turnover is less than Rs. 20 lakh from obtaining registration even if they are making inter-state taxable supplies of services. This measure is expected to significantly reduce the compliance cost of small service providers.
After assessing the readiness of the trade, industry and government departments, it has been decided that registration and operationalization of TDS/TCS provisions will be postponed until March 31, 2018.