India announced a significant revamp of the goods and services tax (GST) regime three months after it was rolled out, addressing key complaints, especially those of small-scale industry and exporters.
The GST Council raised the composition scheme threshold to Rs 1 crore from Rs 75 lakh, allowed smaller businesses with a turnover of up to Rs 1.5 crore to pay tax and file returns quarterly instead of monthly, exempted exporters from payment of tax under various promotion schemes, deferred implementation of the tax deduction at source and collection at source provision to April 1 next year and suspended the reverse charge mechanism until the fiscal year-end.
The council also slashed tax rates on 27 items including sliced dried mango, khakhra, manmade yarn, stationary items, e-waste, plastic waste, rubber waste and job-work services while deciding to adopt a concept paper on the tax rates that would form the backbone of all changes in future.
“GST Council considered the implementation experience of the last three months,” finance minister Arun Jaitley said late on Friday, briefing reporters on the decisions of the 22nd meeting of the council. “Impact of GST on various sectors was discussed.”
Jaitley said a number of representations had been received and the council had decided to give relief to small and medium enterprises (SMEs) and exporters.
“Large part of the tax collection about 94-95% comes from large taxpayers… Smaller ones have low tax burden, but it was felt their compliance burden is high,” the minister said, explaining the rationale behind the move to relax compliance for the sector, which was known to have been hit hard by the switchover to the new tax regime from July 1.
“Small ones should remain in the tax net for the expansion of the base, but we have significantly reduced their compliance burden,” he said. Composition scheme allows traders, manufacturers and restaurants to pay tax at a flat rate of 1%, 2% and 5%, respectively, on their turnover. This facility will be available from October onwards and past returns will have to filed in time.
The council has also set up a group of ministers to examine on an urgent basis issues concerning the smallscale sector such as whether the total turnover calculation for the composition scheme should include exempted goods, if inter-state sales should be allowed for those availing of the scheme and whether input tax credit needs to be given to them. This group will give its report in two weeks. It will also look at the taxation structure for restaurants, Jaitley said. “The group will see if tax system needs to be revisited, tax rate needs to be reduced without input tax credit… It will see what should be the alternate tax mechanism,” he said.
Currently the rates for air-conditioned and non-AC restaurants are 18% and 12%, respectively.
Confederation of Indian Industry (CII) director general Chandrajit Banerjee welcomed the measures and said SME sector compliance will greatly improve.
The reverse-charge mechanism has been deferred until March 31, 2018, to streamline its working. “This will benefit small businesses and substantially reduce compliance costs,” the finance ministry said in a press release. CII’s Banerjee said the deferment of the reverse charge mechanism (RCM) is welcome as it encourages registered taxpayers to continue sourcing from small and unregistered taxpayers.
A BOOSTER PACKAGE FOR EXPORTERS
The council allowed merchant exporters to pay 0.1% GST on the goods they source, which they can claim as input credit, to address the issue of blockage of funds. Besides, both state and central tax authorities have been directed to issue refund cheques for July by October 10 and for August by October 18.
An e-wallet facility will be created that will be provided with notional credit as an advance refund for exporters that could be used to pay GST from April 2018. Exporters availing export promotion schemes such as advance authorisation, Export Promotion Credit Guarantee scheme and Export Oriented Unit scheme would not have to pay GST on their inputs.
Pre-GST vehicle leases would be able to avail abatement of 35%, implying that the present GST rate will be applicable only on 65% of the total lease value. This facility would be available even when the vehicle is sold.
Services providers providing inter-state services up to Rs 20 lakh will be exempted from GST. Those providing exempted service on which interest is received would be eligible for exemption of up to Rs 1.5 crore. Eway bill will be fully implemented from April next year, Jaitley said.The council, Jaitley said, approved aconcept paper that would guide the fitment committee on tax rates.
“All future rates will be tailored as per the concept paper,” Jaitley said. Restaurateurs welcomed the move to review the tax structure for the segment.
“It has been an unprecedented year for the restaurant sector,” said Rahul Singh, vice-president of the National Restaurant Association of India (NRAI). “Demonetisation, highway liquor ban and the GST regime all packed within the same year.
Consumer sentiment has a direct impact on eating out and the higher slab of 18% exacerbated it further. Reduction in the GST rate will give more wallet power to the consumers.” Roshan Banan, managing director, Ocean Pearl Hotels, which also runs the Sagar Ratna chain of restaurants, said, “Lower taxes are welcome as it will boost spending and will be good for the restaurant business.”
Pradeep Shetty, member of the Federation of Hotels and Restaurant Association of India, said: “We have made presentations across states and we are hoping for rates for AC restaurants to come down to 12% from 18%. Smaller restaurants are struggling as a result of the taxes as they do not have the bandwidth. The restaurant industry is not getting input credit for the items it uses. As a result, the costs are being borne by the consumers.”