Subdued demand may force relook at GST composition scheme

New Delhi: With just about one lakh of 70 lakh businesses opting for GST Composition Scheme, tax authorities are reviewing why the scheme that allowed such entities to pay a fixed 1-5 per cent tax, has not clicked.

A senior government official said the Central Board of Excise and Customs (CBEC) is trying to ascertain the reasons for businesses not opting for the Composition Scheme that was especially designed to ease compliance burden of small traders. It plans to step up media outreach programme to popularise the scheme.

The composition scheme is an alternative method of levy of tax designed for small taxpayers whose turnover is up to Rs 75 lakh (Rs 50 lakh in case of eight north-eastern states and the hilly state of Himachal Pradesh).

The objective behind it is to bring simplicity and reduce the compliance cost for small taxpayers. The scheme is optional wherein manufacturers, other than those of ice cream, pan masala and tobacco products, have to pay a 2 per cent tax on their annual turnover. The tax rate is 5 per cent for restaurant services and one per cent for traders.

"Out of the assessee base of 70 lakh, one lakh is very small number. One reason could be that the composition scheme cannot be availed by businesses engaged in inter-state trade. We are looking at it," the official told PTI.

GST Network - the IT backbone of the Goods and Services Tax (GST) regime, had in first week of July asked over 70 lakh excise, service tax and VAT assessees who have migrated to the new indirect tax regime to log in to their account and opt for composition scheme latest by July 21. The government later extended the deadline till August 16.

Besides, there are over 10 lakh new assessees who have got registered for the Goods and Services Tax (GST) which has kicked in from July 1.

"We will increase our outreach programme to tell businesses about the benefits of composition scheme," the official said.

Asked if some more relaxation is on the cards for businesses opting for composition scheme, the official said "the composition scheme is provided in the GST Act. So, we will have to see what can be done".

As per the Central GST Act, businesses are eligible to opt for composition scheme if a person is not engaged in making any inter-state outward supplies of goods and he is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source.

While a regular taxpayer has to pay taxes on a monthly basis, a composition supplier is required to file only one return and pay taxes on a quarterly basis. Also a composition taxpayer is not required to keep detailed records which a normal taxpayer is required to maintain.

Experts said that lacklustre response to the composition scheme is because they are required to pay reduced rate of tax on entire supply which includes taxable supply as well as exempt supply.

"This payment of tax on exempt supplies seems to be punitive provision and seems to be against the basic intention of law," said Rajat Mohan, Partner, AMRG & Associates.

Also, since a composition supplier cannot make any supply on a portal of an e-commerce operator, this provision has shoved away a chunk of small businesses from composition scheme.

"I believe the government needs to pin these issues in the heart before the problems gets escalated and small businesses feel the heat of high tax compliance environment or start losing customers to competition," Mohan said.