Traders with a turnover below R10 lakh a year won’t have to register for or pay the goods and services tax (GST), and those with annual sales of R10 lakh to R50 lakh will need to pay the tax at a rate lower rate than the standard GST rate, official sources told FE.
The concessional tax rate would, however, not be available for traders making interstate transactions irrespective of their turnover, they said. The quantum of concession will be decided by the proposed GST Council which will also determine the standard GST rate. The threshold levels were finalised by the empowered committee of state finance ministers that met here for the second consecutive day on Friday.
For northeastern states, the threshold could be R5 lakh.
The proposed minimum turnover levels for GST to kick in would mean two things: Thousands of small traders with annual sales below R10 lakh would go out of the tax net (in many states the VAT threshold is R5 lakh and below, though in others it is R10 lakh and above.) Some tiny units will come come under the tax net given that the central excise duty is now payable only for units with R1.5 crore turnover.
Experts said keeping the turnover threshold for GST as low as R10 lakh would be a problem for small businesses given the compliance requirement and use of sophisticated IT network in tax payment and claiming of credits that small traders may not be equipped for. “In any tax regime, 80-90% of revenue would come from the limited number of leading assesses, while the administrative cost would far outweigh the revenue from small taxpayers,” said R Muralidharan, senior director, Deloitte in India.
The Centre had pitched for a threshold of R25 lakh, and even registration by traders below the threshold so that they could be captured in the tax net as soon as their sales breach the limit.
However, state finance ministers did not agree to that. Amit Kumar Sarkar, partner, Grant Thornton India, said that a R10-lakh threshold would more than offset any revenue loss for states keeping VAT threshold of below R10 lakh given the substantial gains likely from their ability to tax services (by way of state GST) in the proposed regime.
More than half of the current traders in the tax net will be out of it if the GST threshold is fixed at 25 lakh, as suggested by the Centre.
Kerala finance minister and chairman of the empowered committee of state finance ministers (EC) KM Mani told reporters after the two-day meeting of the panel at Kovalam near here that the framework for registration of traders and businesses under the new indirect tax regime has been finalised. The finer points of the framework on GST registration would be incorporated in the GST laws to be passed by central and state governments.
Mani said the EC could approve the report on registration but not those on returns and refunds as state finance ministers made certain suggestions, based on which these reports would be revised. However, considering the importance of the time-bound work of GSTN — the not-for profit company set up by the Centre and states to create the IT infrastructure needed for the new tax system — the committee has authorised it to go ahead with the proposals as they stand. “Small changes, if needed, GSTN can always tweak its platform to incorporate the changes,” Mani said.
Rashmi Verma, additional secretary (revenue) in the finance ministry, said, “The threshold below which traders will not be required to register will finally be decided by the GST Council, but the EC has recommended that traders below Rs 10 lakh sales need not register. It is optional for them. If they want to, they can.”
Mani also said the empowered committee has approved the reports on GST on interstate trade (IGST) and GST on imports. The framework on IGST finalised on Thursday seeks to remove all irritants that businesses face at present in paying taxes using the credits they have earned on taxes paid previously on raw materials and services. Under this, states will not have any right to restrict input tax credits on interstate transactions as the idea is to facilitate free flow of tax credits and thus move towards a common national market. Sources also said cross-utilisation of CGST or SGST credit will be allowed for payment of IGST.
The GST rate, finance minister Arun Jaitley said recently, would be much lower than the 27% proposed by Delhi-based think tank NIPFP as a revenue-neutral rate.
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