Ministerial panel proposes lower GST rates for small businesses

30 Oct 2017


A panel of ministers has recommended lowering the goods and services tax (GST) rates for small businesses and extending the benefit to more such units in an attempt to reduce their tax burden and improve compliance.

If accepted by the GST Council at its 9-10 November meeting, the changes in the so-called composition scheme could benefit millions of small enterprises, eateries and traders and thereby encourage the informal segment of the Indian economy to come under the tax net without burdening it.

The GST Council has been working on encouraging the informal segment of the economy, which is dependent on cash transactions, to come under the tax net without burdening them.

The ministerial panel at its meeting on Sunday recommended a new tax rate under the composition scheme, which would be 1 per cent for traders, manufacturers and restaurants, Himanta Biswa Sarma, the convener of the ministerial panel, told reporters after the meeting. It was previously 1 per cent, 2 per cent and 5 per cent, respectively.

The panel also recommended increasing the ceiling for eligibility to enterprises with annual revenue of less than Rs1.5 crore from Rs1crore currently. The GST Council had on 6 October decided to raise the ceiling to the current level from Rs75 lakh and also extended the deadline for signing up for the scheme to 31 March 2018.

Members of the ministerial panel include 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.

The panel at its first meeting earlier this month considered a proposal to do away with the distinction between non-air-conditioned restaurants taxed at 12 per cent and air-conditioned restaurants taxed at 18 per cent.

''The group of ministers decided that input tax credit should be available to air-conditioned restaurants and that these could be taxed at 12 per cent (against 18 per cent now). However, considering the revenue implications, the GST Council could take a call on the tax slab,'' said Sarma. However, for small traders who sell both taxable and tax-exempt items (such as rice, flour, etc.), he said the composition scheme should be made more flexible.

The ministerial panel has recommended that the GST Council let small traders pay either 1 per cent on their revenue of taxable items (loose rice, pulses, etc are exempt from GST) or 0.5 per cent tax on total turnover.

''In the latter case, central and state governments will get a quarter of a per cent of tax each. The idea is to make the system simple,'' said Punjab finance minister Badal.

Sarma said that on one issue - allowing enterprises in the composition scheme to avail of input tax credits on business-to-business transactions-the panel could not reach a consensus and that this matter will be referred back to the GST Council.

The panel also favoured allowing those covered under the composition scheme to supply goods across state borders.

The composition scheme was envisaged for small businesses, which was expected to ensure a flat rate and easy compliance. Only around 1.5 million small businesses have signed up for it so far, against the 8.9 million registered GST tax assesses.

It was clear that the scheme needed to be made more attractive and that just the flat rate and the easy compliance (summary returns every quarter) were not drawing enough assessees.

More changes are also likely, especially in terms of specific tax rates as tax authorities look for easing the compliance burden on small and medium enterprises.

Meanwhile, Bihar deputy chief minister and head of the GST Council Sushil Kumar Modi said 18 of the 27 Goods and Services Taxes Network (GSTN) related functionalities with 30 October deadline have been operationalised by Saturday.

"In the first meeting, we had prioritised 47 functionalities and we had given timeline for each and every function, and till October 30, 27 functions had to be launched or issues had to be resolved by Infosys," Modi told reporters after chairing the third meeting of the Group of Ministers (GOM) here.

"By October 28 (today) out of 27 functionalities, 18 functions have been operationalised. This is about 66.7 percent," he said.

Pointing out that nine functionalities could still not be operationalised, Modi said Infosys was doing its best.

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