The 29th meeting of the GST Council on Saturday is likely to approve measures for easing tax burden on micro, small and medium enterprises (MSME) which fall below the annual turnover of Rs 1.5 crore.
The relief could be extended in the form of refunds to these assessees so that the effective tax rate is cut down while the input credit chain remains intact, sources said.
Additionally, the Council may again consider the proposal for incentivising digital transaction, though the group of ministers (GoM), headed by Bihar deputy chief minister Sushil Modi, recommended last month to keep the proposal in abeyance for a year and allow GST revenue collections to stabilise first.
The scheme proposes a 2% (1% each for CGST and SGST) discount on the GST rate of a commodity to consumers paying through digital means. However, the benefit would have a ceiling of Rs 100. This proposal could cost the government up to Rs 1,600 crore in revenue. The GoM is scheduled to meet late evening on Friday.
The decision to provide succour to the MSME sector is based on the fact that many such businesses were exempt from the excise duty in the pre-GST regime, but their tax liability now is equivalent to a combination of excise and VAT. This has robbed them of the competitive advantage since the rollout of the GST. For instance, small scale industries were exempt from excise duty for units with turnover of less than Rs 1.5 crore since 2008.
Incentives to MSMEs will come with adverse revenue implication, but sources said even a small quantum of relief would cover a large part of taxpayers, given that small taxpayers contribute a small fraction to the GST revenue collection. According to official data, registered taxpayers up to turnover of Rs 1 crore constitute over 78% of the total base, but contribute less than 7% to the revenue collection. In absolute terms, these assessees pay about Rs 6,000 crore in GST every month if the total collection is Rs 90,000 crore.
The Council meeting on Saturday is being held to exclusively discuss challenges facing small taxpayers, which include laws, tax rates, procedure and GST Network-related issues.
The Council had allowed quarterly return filing for assessees with up to Rs 5-crore turnover in the previous meeting, but they would still need to deposit tax every month.
The MSMEs sector is believed to have suffered the most in the aftermath of demonetisation. Besides, they have also had the hardest time adjusting to IT-heavy infrastructure of the GST.