Relief for small and medium enterprises, 27 items cheaper

New Delhi: Amid concerns that the three-month-old indirect tax is hitting businesses and derailing economic growth, the GST Council on Friday took steps to ease the cash crunch being faced by exporters and reduce compliance burden on small and medium enterprises.

The council also reduced tax rates on over two dozen items, including khakra and plain chapatti, unbranded namkeens and unbranded ayurvedic, unani and homeopathy medicines (from 12 to 5 per cent in all these items).

Eating out at AC restaurants may get cheaper as a Group of Ministers has been set up to discuss if GST can be brought down from 18 to 12 per cent and submit a report in two weeks.

Prime Minister Narendra Modi welcomed the steps announced on Friday and said the GST has become “even simpler” after GST Council’s recommendations.

The 22nd meeting of GST Council was held at a time when the government is worried that confusion among traders and businesses over GST could have an impact on Lok Sabha elections in 2019.

During the meeting it was decided that small businesses with annual turn over of up to Rs 1.5 crore will have to now file returns and pay returns quarterly, instead of monthly, to reduce compliance burden on them. These businesses cover around 90 per cent of the tax base but pay around 5-6 per cent of the total GST.

Large businesses with over Rs 1.5 crore turnover, will still have to file monthly returns. The council also decided to raise the threshold to avail the composition scheme to turnover of Rs 1 crore against the present Rs 75 lakh. Under the composition scheme the compliance burden on traders is less and they have to pay a nominal tax on overall income. Traders availing the composition scheme have to pay 1 per cent tax on their income, manufacturers have to pay 2 per cent and restaurants 5 per cent tax. This threshold of turnover for special category states, except J&K and Uttarakhand, will be increased to Rs 75 lakh from Rs 50 lakh. The turnover threshold for J&K and Uttarakhand shall be Rs 1 crore.

“Compliance burden of medium and small taxpayers in GST is being reduced,” finance minister Arun Jaitley said after the GST Council meeting.

Mr Jaitley said that exporters will get refund for taxes paid in July from October 10 and refund for August backlog would get cleared from October 18 through cheques. Exporters had been complaining that their cash flow had been hit as they were not getting refund on taxes paid under GST. In the previous regime, exporters were exempted from paying excise duty or VAT.

The system to electronically pay back refund to exporters is still not working. As a long-term solution for refunds, the GST Council decided to implement “e-wallet” from April 1, 2018.

An e-wallet will be credited with a notional amount as if it is an advance refund. This credit will be used to pay Integrated Goods and Service Tax (IGST) and GST among others. Exporters will now have to pay nominal GST of 0.1 per cent for procuring goods from domestic suppliers for export.

The Prime Minister, BJP president Amit Shah and finance minister Arun Jaitley had on Thursday discussed how to address the concerns raised by various segments, especially small-scale enterprises.  

The GoM, set up to look into reducing the tax burden on restaurants, will also consider allowing interstate trading to those registered under composition scheme.

The GST Council decided to suspend reverse charge till March 31, 2018, which will benefit small businesses and substantially reduce compliance costs. Reverse charge is a mechanism where the recipient of the goods and/or services is liable to pay GST instead of the supplier.

The e-way bill system for smooth movement of trucks across state borders will be introduced in a staggered manner with from January 1, 2018, and will be rolled out nation-wide on April 1, 2018. Under the system, transporters will need to carry an electronic waybill or e-way bill when moving goods from one place to another.

The GST Council also cut tax on man-made yarn (from 18 to 12 per cent), modelling paste for children amusement (from 28 to 18 per cent), paper waste (from 12 to 5 per cent), e-waste (from 28 to 5 per cent).

Services job works like zari, food items and printing items would attract 5 per cent tax instead of 12 per cent. Government contracts involving high amount of labour will be levied 5 per cent GST instead of 12 per cent in order to contain cost of those programmes. Also, salwar suit in a three-piece set has been classified as fabric and 5 per cent GST would be levied on it.

The Prime Minister said the new steps announced by the council are in line with the government’s constant endeavour to safeguard citizens’ interests and ensure India’s economy grows.

In a tweet, he congratulated Mr Jaitley that and his team for engaging with various stakeholders for “extensive feedback which led to today’s recommendations”.

Confederation of Indian Industry (CII) director general Chandrajit Banerjee said that the SME sector’s compliance will greatly improve as limit for composition scheme has been increased to Rs 1 crore. “Now for SMEs with annual turnover of Rs 1.5 crore will be allowed to file quarterly returns, this will be a big relief to small-scale players,” he said.