Committee of state finance ministers defers setting cut-off for GST exemption

The empowered committee of state finance ministers on Friday failed to shed differences over the threshold below which small businesses will be exempt from the proposed goods and services tax (GST).

While the centre wants the threshold to be Rs.25 lakh, many small states want to keep the bar as low as Rs.10 lakh.

The state finance ministers did not discuss the GST rate and referred the issue of the threshold to a sub-committee to collect data from all states on turnover of traders, to take a final decision backed by data.

Punjab finance minister P.S. Dhindsa, who was at the meeting, said states such as Punjab, Jammu and Kashmir, Chhattishgarh and Delhi supported a higher threshold while most states wanted a lower cut-off.

“The argument for a higher threshold is to keep a majority of small traders out of it as revenue collection from them will be very low...” he said. “But most states support a lower threshold as they want more traders to come under the tax net.”

Another participant at the meeting, speaking on condition of anonymity, said a National Institute of Public Finance and Policy report on the GST rate had been handed to the empowered committee but was not tabled.

The 122nd constitutional amendment bill for the implementation of GST, which subsumes all indirect taxes to create a unified market across the country, has been cleared by the Lok Sabha and is awaiting legislative passage in the Rajya Sabha. The government has started reaching out to the opposition parties to pass the bill during the winter session of Parliament starting next week. The bill would then require to be ratified by at least 50% of state assemblies to become law.

Delhi deputy chief minister Manish Sisodia, who chaired the meeting in the absence of a permanent chairman after Kerala finance minister K.M. Mani resigned from his post, said the empowered committee of state finance ministers will meet next month to decide on a new chairman.

“The empowered committee will in its next meeting in the presence of finance minister Arun Jaitley decide on the chairman... The meeting should happen in December,” he told reporters.

Sisodia said the states have two options: either raise the number of taxpayers or decrease the number and levy higher tax. “Based on data, a decision will be taken so that it is not based on prejudice. The sub-committee will submit its report before the next meeting,” he added.

For GST to become a reality in 2016, there is a need to accelerate the closure of open points like the passage of the constitutional amendment bill, agreement on a threshold, GST rates, simplification of procedures and finalization of the GST legislation, said R. Muralidharan, senior director at audit and consulting firm Deloitte.

“Considering the fact that the GST regime requires the assessees to interface electronically with the GST network portal for various compliances related to tax payments, filing of returns, availing of credits, etc., it is necessary to keep the thresholds at a higher level (Rs.25 lakh) as the smaller assessees would neither have the infrastructure nor the bandwidth to undertake these compliances,” he said. “This would reduce the tax administration costs, besides increasing the efficacy of compliance.”

Source : Livemint