The Chief Economic Adviser-led panel on goods and services tax (GST) has recommended that traders below Rs 25-lakh turnover should not be covered by the new indirect tax regime while suggesting a concessional rate for those with Rs 25 lakh to Rs 1 crore turnover.
Making a case for common threshold, the committee, said, “First, minimising the burden on small taxpayers would call for higher thresholds. Second, a high threshold also achieves social objectives because poorer households are more likely to buy from smaller outlets (such as kirana shops). Third, on the other hand, a high threshold not only risks foregoing revenues but also undermines the value-added chain that is so critical for the governance benefits of having a GST. The current proposal is to have a common threshold of Rs 25 lakh for goods and services combined but raising this threshold say up to Rs 40 lakh may be considered”.
Earlier, while the Centre had proposed the threshold of Rs 25 lakh, states like Punjab, Uttar Pradesh and Chhattisgarh had sought a lower threshold of Rs 10 lakh. Similarly, while the Centre had proposed a composition threshold of Rs 75 lakh, states like Punjab want it to be fixed at Rs 50 lakh.
While the CEA committee has refrained from fixing a rate for the composition threshold, discussions in the empowered committee of state finance ministers have favoured a rate of 1 per cent.
In its report, the committee has recommended a revenue neutral rate of 15-15.5 per cent while a standard rate of 17-18 per cent for both Centre and states. The report has suggested a split of 8 per cent for the Centre and 9 per cent for states in the standard rate.
On the price rise scenario in the event of implementing GST, the panel has said that while there will be “negligible inflation impact” at the rates suggested, “A higher RNR with a lower rate of 12 per cent and a standard rate of 22 per cent would have 0.3-0.7 per cent impact on aggregate inflation.”
Emphasising on the need to narrow down the exemption list, the report further said that while clothing warrants being taxed at the lower rate by both the Centre and states, gold should be taxed at the standard rate (bullion can be exempted from the GST). As such, exemptions on 300 items provided by the Centre will be brought down to 90 items as was recommended by the empowered committee. It stressed that exemptions should be confined to final goods because taxes on intermediates are reclaimable as input credits while area-based exemptions should be phased out.