Another sop story

GST Council's relief to MSMEs is welcome

The Goods and Services Tax Council, the apex body with representation from the Centre and all states, announced a series of sops for taxpayers on Thursday. The prime beneficiaries are the micro, small and medium enterprises (MSMEs), as the GST Council has doubled the exemption limit to Rs 40 lakh annual turnover. For the Northeastern and hilly states, this exemption limit has been increased from Rs 10 lakh to Rs 20 lakh. The Council has also significantly altered the composition scheme, which allows businesses to pay tax at a concessional rate, and makes GST compliance easier. The Council has decided that the threshold for availing the composition scheme will now be Rs 1.5 crore instead of Rs 1 crore. Further, the Council has introduced a composition scheme for the services sector as well. This will benefit small service providers with an annual turnover of up to Rs 50 lakh as they can now pay a composition rate of just 6 per cent. The Council has also allowed Kerala to levy a calamity cess of 1 per cent on intra-state sales for a maximum period of two years, but has deferred some of the other contentious issues, which have been referred to two separate groups of ministers.

The relief for the MSMEs is welcome as the sector has been reeling from the twin effects of demonetisation in November 2016 as well as the hasty roll-out of the GST in July 2017. What is also healthy is that the GST Council seems to have finely balanced the need for providing relief with the concern about slipping revenue collections. Indeed, the Rs 40 lakh exemption limit is only slightly more than half of what many were asking — Rs 75 lakh. Moreover, the GST Council has also clarified that most of these exemptions will come into effect on April 1, that is, the next financial year. As such, the hit on revenue collections for this fiscal year has been deftly avoided.

Having gone this far, the GST Council should hit the pause button on tinkering with the rates and allow things to settle down. Repeated interventions in the form of exemptions and other reliefs can create confusion. A better idea will be to go in for real reforms by bringing petroleum, the electricity duty and real estate under the GST. This will cut out the cascade of taxes, raise transparency and widen the tax base. There is also no reason to keep an intermediate item such as cement in the 28 per cent bracket.

There has also been a growing worry with the rising level of frauds (especially those involving claiming input tax credit) and tax evasions in the GST. For instance, according to the government, compliance has steadily declined over the past one year, as 29 per cent of regular taxpayers have not filed returns in November 2018 — a three-old jump year-on-year. Indeed, in the current financial year, monthly GST collections are trailing the Budget targets by around Rs 15,000 crore per month. The GST Council should now focus more on these issues so that the process works smoothly, leading to greater revenue mobilisation.