A group of state finance ministers might recommend raising the turnover threshold for the goods and services tax (GST) from the current Rs20 lakh to Rs75 lakh, in a move that would give lakhs of micro and small enterprises the option to be outside the ambit of GST.
Bihar Deputy Chief Minister Sushil Kumar Modi, who is a member of the group, told FE that a proposal to raise the exemption threshold was found to be more practical than tax refunds in providing relief to MSMEs.
Modi — who holds the finance portfolio in the state and has been a key member of many GST-related panels over the last two-three years — also said a composition scheme similar to existing ones for traders and manufacturers could be made available for small services providers. The annual revenue limit for it could be between Rs50 lakh and Rs1 crore.
However, the higher overall GST threshold might not dramatically reduce the number of GST registrants, 1.2 crore at last count, nor would it impact the government’s revenue in any significant manner.
While a quarter of the firms registered with the GST Network (GSTN) have turnover from Rs20 lakh to Rs1 crore, their share in the government’s GST revenue mop-up is just 5 per cent.
Even as the mandatory lower limit for a firm to register for GST is Rs20 lakh, more than half of the firms registered are those with turnover below that level. Though these sub-Rs10 lakh firms contribute just 1.5 per cent of the GST revenue, they prefer to be in the tax chain for the benefit of input tax credit and to keep large businesses (which are in the GST chain) as their buyers.
The panel headed by Minister of State for Finance Shiv Pratap Shukla was formed in August to suggest ways to make GST less burdensome for small firms. Although some states had proposed that MSMEs be refunded a portion of taxes paid by them, the group, Modi said, found the approach impractical. —FE