GST on Course Correction Path

GST – termed as a ‘good and simple tax’ by Prime Minister Narendra Modi when it was implemented with much fanfare three months back – has just undergone a course correction to remove
certain teething troubles.

Though marketed by the government as a ‘good tax’, certain issues during the 100 days of its implementation proved that it was not a ‘simple tax’.

Against this backdrop, the government made a move to relax IGST -Integrated Goods and Services Tax – applicable on all inter-state supplies of goods and/or services.

The GST breather given to small and medium enterprises (SMEs) and exporters will address their liquidity issues, improve efficiencies and act as a shot-in-the-arm for the economy as a whole, say analysts.

The GST Council recently hiked the threshold turnover for the composition scheme that allows SMEs to pay 1-5 per cent tax without going through tedious formalities.

The Government has also eased the filing process for SMEs with a turnover of Rs 1.5 crore from monthly to quarterly. The turnover limit for availing the composition scheme has been hiked from Rs 75 lakh to Rs 1 crore, enabling SMEs to pay taxes at concessional rates.

The government’s move to relax IGST for six months and faster processing of refunds for exporters would address their liquidity issues and improve business efficiencies in the short-term, analysts at ratings agency Crisil said.

Also, reducing compliance burden for SMEs would widen the tax base under GST, it said in a report, nothing that both these moves would widen the tax-payer base.

The Government had earlier mandated reverse charge mechanism under which large entities pay taxes on behalf of their supplies from unregistered SMEs, creating an additional tax burden on large entities. Hence, they preferred not to route through unregistered SMEs.

The latest GST Council meeting removed the reverse charge mechanism up to March 2018, which provides a short term relief to SME.

Even industry experts have applauded these initiatives.

“With measures to ease liquidity for exporters, improving ease of compliances for small tax payers, deferment of certain onerous provisions such as e-way bill, reverse charge and rationalisation of rates including man-made yarns, the Council meeting is a shot-in-the-arm for the economy,” said Priyajit Ghosh, partner-indirect taxes at KPMG India.

The government has also provided some measures to give liquidity respite to exporters, which has come as a welcome move by way of speedier refunds of input credits.

“The levy of IGST has been exempted for six months for exporters on imports until further clarity is provided by government. This indeed benefits various exporters who were required to pay IGST without proper justification for such levy,” Rashmi Deshpande of Khaitan & Co said.

Deferment of e-way bill provisions till April 2018 is meaningful as this was under consideration for a very long time and the six-month window will allow the stakeholders to clearly understand the process.

Pratik Jain, indirect tax leader at PwC India, said though the threshold under composition scheme has been increased to Rs 1 crore, to make this scheme really effective, it needs to be liberalised more by including all service providers and allowing them to undertake inter-state supplies.

“Deferring the e-way bills till April is welcome and industry would hope that the GST Council would carry out a detailed study for the need of such a system and a decision would be taken after proper consultation with all the stakeholders,” he said.

The Congress, however, said that the hike in GST exemption limit from the current Rs 75 lakhs to Rs 1 crore doesn’t really help the small businesses as Central excise exemptions pre GST was to the tune of 1.5 crore.

The party also alleged that high employment-generating sectors such as agriculture and textiles too have got little tax relief and the common man is burdened with very heavy taxes on items of daily use.

“Overall, a vision-less government drunk with arrogance is wasting a golden opportunity of putting India on a growth trajectory,” said Randeep Surjewala, head of the communication wing of the main opposition party.

The Congress leader also alleged that a Damocles Sword would be hanging over the business community as several components of the GST such as tax deducted at source (TDS), tax collection at source (TCS) and reverse charge mechanism have only been deferred until March 2018.

Many small traders have encountered problems in complying with the new Goods and Services Tax (GST) regime — whether it related to filing of returns or the cumbersome procedures for claiming refunds for taxes paid on input purchases.

It is welcome, therefore, to see the NDA government at least acknowledging that firms, especially the smaller ones, are facing a genuine “compliance burden”.

Some of that burden has, no doubt, been reduced by the decisions taken by the GST Council headed by Union Finance Minister Arun Jaitley.

Thus, businesses with an annual turnover of less than Rs 1.5 crore have now been permitted to file quarterly returns, instead of every month. The turnover threshold for availing of the so-called composition scheme —which allows small manufacturers, goods traders and eateries to pay tax at a flat 1-5 per cent rate without going through the normal tedious GST procedures — has been raised from Rs 75 lakh to Rs 1 crore.

Also, the reverse charge mechanism — under which receivers of goods and services are liable to pay tax on supplies by unregistered vendors, thereby discouraging large companies from sourcing from such small entities — has been deferred till March 31, 2018.

The other significant relief granted has been to exporters. They have been promised that all held-up refunds of integrated GST paid on exported goods will be expeditiously cleared. This, along with the creation of a proposed “e-wallet” facility from April 1 — in the form of an advance refund or notional credit that can be used to pay IGST and GST on inputs — may somewhat address the severe working capital blockage currently being experienced by exporters.

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