In what should come as a relief to exporters and small businesses, the GST Council on Friday announced a slew of decisions to reduce their compliance burdens, including the eventual setting up of an e-wallet for input tax credits for exporters, and the option for small businesses to file returns and pay taxes only once a quarter.
The changes come two days after Prime Minister Narendra Modi said he had instructed the Council to find solutions to the problems being faced by the trading community.
The GST Council also reduced the tax rates on 27 items, Finance Minister Arun Jaitley said.
“The committee of secretaries set up to look into the problems faced by the exporters found that the credit blockage felt by exporters was causing a liquidity problem for them,” Mr. Jaitley told reporters following the 22nd GST Council meeting.
“In light of this, we have taken three decisions… By October 10, the refunds for July will be processed and paid, and by October 18, the same for refunds for August. The Council has also decided that each exporter will get an e-wallet in which a nominal sum will be deposited for tax credit purposes, which will be offset against the credit refund when it happens.”
The third decision regarding exporters taken by the Council is to impose a nominal 0.1% GST rate for them till March 31, 2018, Mr. Jaitley said. The e-wallet system is expected to rollout from April 1, 2018, he added.
“The changes and initiatives announced by the Government following the GST Council meeting will address the problems of the exporters, particularly those in micro and small segments,” Federation of Indian Export Organisations (FIEO) President Ganesh Kumar Gupta said in a statement. “The refund of GST for July by October 10 and August by October 18 will address the liquidity concerns of the exporters.”
“Various relief granted by the GST Council today will be a major breakthrough in simplifying GST and encouraging fast adoption & access of GST among the trading community of the country and will clear the air of uncertainty and chaos,” the Confederation of All India Traders (CAIT) said in a note. “In the wake of current situation where traders are a depressed lot, such relief were much awaited and will change the code and colour of GST on a positive note.”
“The collection pattern observed so far shows that a substantial portion of the tax is coming from the big players,” Mr Jaitley said. “However, while the small players have a low tax burden, they have a high compliance burden. So, we have taken a few decisions to reduce this burden on them.”
The Finance Minister announced that the composition scheme — meant to ease compliance for small businesses — will be extended to businesses with a turnover of ₹1 crore a year from the previous limit of ₹75 lakh.
In addition, the Council has decided that all businesses with a turnover of ₹1.5 crore or less a year, can file their returns and pay taxes on a quarterly basis instead of a monthly basis. Mr Jaitley said this would reduce the compliance burden for 90% of the taxpayers not already in the composition scheme.
Revenue Secretary Hasmukh Adhia however, clarified that this will roll out from October 1. However, the GSTR-3B form will have to be filed monthly till December, he said.
“The increase in threshold under composition scheme to ₹1 crore would bring in many more small businesses within its ambit,” Pratik Jain, Leader, Indirect Tax at PwC India said. “However, to make this scheme really effective, it needs to be liberalized more by including all service providers and allowing them to undertake inter-State supplies.”
“The benefits to the exporters in the form of e-wallet, interim benefits by manual filing and payment of 0.1% are very welcome,” Abhishek A Rastogi, Partner, Khaitan & Co said. “It needs to be seen that how the other issues which have reached different courts in the country are addressed in the days to come. Certainly, the need of the hour is to provide impetus to the business growth and it appears that the government is openly looking into the concerns of the businesses.”
Group of Ministers
The GST Council has also set up a Group of Ministers to look into various issues — including whether, when calculating the tax burden of a business, its total turnover should be considered or should exempted goods first be excluded. The GoM will also look into whether those who opt for the composition scheme should be allowed inter-state trade. The third aspect the GoM will analyse is whether the rate of tax on restaurants needs to be reduced or should they not be allowed input tax credits.
The GoM is to submit its report in two weeks.
The Council has decided to reduce the rates on several items, including sliced dried mangos, khakhra and plain chappatis, unbranded namkeen, unbranded ayurvedic medicines, plastic, rubber and paper waste, yarn, diesel engine parts, pump parts, e-waste, and several services.
Federation of Indian Export Organisations (FIEO) President Ganesh Kumar Gupta said the changes and initiatives announced by the Government following the GST Council meeting will address the problems of the exporters particularly those in micro and small segments.
The refund of GST for July by October 10 and August by October 18 will address the liquidity concerns of the exporters, he said in a statement.
Welcoming the decision to introduce e-wallet, mooted by FIEO, he said it will provide a permanent solution to the liquidity problem of the export sector. The Government has also resolved the problem of merchant exporters by putting a duty of 0.1% on any supply from manufacturing to merchant, he said, adding that these are very pragmatic decisions showing the flexible approach of the Government to ameliorate the problems of export sector and impart competitiveness.
The FIEO President said these decisions will help in pushing exports on a growth path.