The Goods and Services Tax (GST) Council could bring down the tax rate on as many as 140 items from the highest slab of 28% as it meets in Guwahati on Friday, leaving only 40-odd items in this category, according to government officials. The items most likely to see a lower rate include sanitaryware, detergents, furniture, electrical switches, and plastic and ceramic pipes, among others. The council will deliberate on a key proposal made by a group of state finance ministers (GoM) which called for allowing all taxpayers to file returns quarterly even as they pay taxes on a monthly basis. At the last meeting, the council had decided to allow taxpayers below the Rs 1.5-crore revenue threshold to file returns quarterly. This covered nearly 90% of all taxpayers registered on the GST Network portal.
The council had in May fixed 28% rate for nearly 230 items out of a total 1,211 items under GST on the basis of recommendations by a rate fitment committee. In subsequent meetings, it has cut rates on nearly 100 items including 47 in the 28% category. The fitment committee had followed a principle of equivalence in fixing rates, which means that items fell under the GST slabs (0%, 5%, 12%, 18% and 28%) nearest to the pre-GST tax incidence. Hinting at the overhaul in GST rates, Bihar deputy chief minister Sushil Modi on Wednesday said that the council could prune rates of nearly 80% of the items in the highest slab. Earlier this week, Union finance minister Arun Jaitley had said that some of the goods in the highest slab shouldn’t have been there in the first place. Besides, the council is also likely to prune rates of some items in the 18% slab.
While luxury and ‘sin’ goods are sure to be retained at 28% GST, some other items like digital cameras, shaving creams, paints and varnishes, chocolates, refrigerators, washing machines, marble and granite too will continue to attract the highest rate, an official said. Apart from the rate revisions, the council in its upcoming 23rd meeting is likely to announce a slew of measures aimed at reducing the compliance burden on all assessees. While all taxpayers adopt the practice of filing quarterly returns for inward supplies (GSTR-2) and outward supplies (GSTR-1), they will have to file the summary returns (GSTR 3B) and pay taxes every month. Comprehensive returns are needed for the revenue department to do the invoices-matching, but taxpayers have been finding the current frequency of these returns cumbersome.
Till earlier this week, only 21 lakh taxpayers had filed GSTR-2 for July compared with 45 lakh who filed GSTR-1 after the October 10 deadline was extended to November 30. The vast gap between the two would mean that a large number of taxpayers would struggle to claim input tax credits. To make the composition scheme, which offers concessional tax rates and simpler compliance to assessees below Rs 1 crore revenue threshold, attractive, the council will consider the GoM’s proposal of raising the threshold to Rs 1.5 crore. However, this change will require an amendment in the GST Act where the threshold has been kept at Rs 1 crore of annual turnover. Additionally, the council is also expected to cut tax rates under the composition scheme for manufacturers and restaurants to 1%, from 2% and 5%, respectively. For traders who take into account turnover from exempted goods will be charged at 0.5% of turnover while it will remain at 1% for those that only show revenue from non-exempted items being traded.
Further, businesses that opt for the composition scheme may also be allowed interstate supplies. Sources said that a committee of tax officials would work out a mechanism to ensure that revenue-sharing among states won’t be distorted as a result of this relaxation (which is not exactly in line with the principle of destination-based tax). Currently, over 15.5 lakh out of over 95 lakh taxpayers registered for GST are under the composition scheme, which provides for easier compliance and lower tax rates. However, the government has said that it had expected a lot more assesses to register for the scheme. The number of composition dealers had jumped from 10 lakh to 15.5 lakh after the council had raised the turnover threshold to Rs 1 crore from Rs 75 lakh earlier earlier this month. The council had also extended the last date to opt for the composition scheme to March 31 next year.
Also, if the council accepts the GoM’s proposal, all restaurants will pay taxes at 12%; currently, air-conditioned restaurants pay GST at 18% while the levy is 12% on non-air-conditioned ones. However, the uniform 12% rate will come with removal of the input tax credit facility if revenue projections are adversely impacted. The council will also have to take a call on bringing down tax on hotel rooms with tariffs above Rs 7,500 per night to 18%, instead of 28% now, as this rate change has significant revenue implications. The GoM, the source said, might also suggest that maximum retail price (MRP) labels on product packs include break-up of the central GST and state GST amounts, to thwart the wrong practice among several businesses to levy GST over and above MRP.
A tax analyst said that allowing quarterly returns for all taxpayers would be an excellent move as monthly filing of comprehensive returns puts enormous burden on small taxpayers. All taxpayers could be allowed to file GSTR-3B which will ensure monthly revenue to the government while quarterly comprehensive filings will ensure that invoice matching can be done, he added. “There is a need to further simplify the GST returns-filing processes and composition requirements to improve the acceptability of GST amongst small businesses. Enhancing the composition limits, reducing the number of returns, reducing the rates, etc. could lead to significant improvements in compliance by small businesses. It is necessary to reduce the overall compliance burden of all businesses as they were accustomed to much lower levels of compliance in the past,” said MS Mani, partner, GST, Deloitte India.