In a move that should get more traders into the ambit of the proposed goods and services tax (GST), the Centre and states may settle for a common threshold of Rs 10 lakh for imposition of the levy.
At present, the threshold prescribed for imposition of Value Added Tax (VAT) — which will be abolished when GST comes into effect — differs from state to state. It is Rs 5 lakh of annual turnover in a majority of the large states. For the Centre, the threshold is Rs 1.5 crore. It applies VAT on businesses above this level of annual turnover.
The move for a common threshold would be a deviation from the suggestion made by the empowered committee of state finance ministers. The committee had called for fixing the threshold for Central GST at the present level of Rs 1.5 crore, and to raise it to Rs 10 lakh for state GST. The Centre had opposed the proposal, saying GST would be a combined tax regime and the thresholds should be the same for both, states and the Centre.
The Union finance ministry has discussed the issue with the empowered group. The latter has left it to the Centre to decide its threshold, while maintaining that in its view, the threshold for the Union government should be higher than that for states. The Centre has told the states it would like to keep its threshold at Rs 10 lakh, too, a government official told Business Standard.
“We want that the threshold level should be the same for both. If it is Rs 10 lakh for the states, it cannot be as high as Rs 1.5 crore for us. States expressed their opinion and said we can decide our limit,” added a finance ministry official, who did not wish to be named.
The rationale behind the empowered committee’s suggestion for different thresholds was to protect the “interests of small traders and small scale industries and to avoid dual control”. The counterview was that it might lead to some companies underreporting their annual turnover.
The Union finance ministry said instead of keeping them out of central GST, small businesses below Rs 1.5 crore could be compensated by simplifying and reducing the paperwork for them. These businesses would not be required to file returns frequently and the registration process would be simplified for them, besides prescribing a minimum audit, based on risk parameters.
The Centre’s other worry was that a variance in threshold limit could change the revenue-neutral rate and also lead to problems in collecting IGST, which would be applied on inter-state transfer of goods and services. About 80 per cent of the goods have inter-state movement and different thresholds can lead to accounting problems. A separate threshold would lead to change in the assessee base for the Centre, which in turn would affect the requirement for IT infrastructure.
The official said after the last meeting of the empowered committee, there had been a lot of progress in discussions with the states on moving ahead with GST.
In the last meeting, the government had agreed to give more than Rs 50,000 crore to compensate the states for losses on account of GST introduction. The 13th Finance Commission had suggested a compensation of Rs 50,000 crore for five years.
Finance Minister Pranab Mukherjee told the empowered committee he was ready to fully compensate the states in the initial years, provided there was a consensus on the broad framework for GST, including the threshold limit, exemption list and the revenue-neutral rate.