A persistent shortfall in the goods and services tax (GST) collections has forced the GST Council to move slowly on the plans to give more sops to micro, small and medium enterprises (MSMEs). Till the next elections, the GST structure might not see any major change, sources said, adding that even the new return filing system may have to wait till the polls are concluded and the new government assumes office.
The government reckons that the rolling out the proposed additional sops to MSMEs — one suggestion was to refund a portion of the taxes paid by these units to reduce their tax liability without upsetting the GST chain — closer to elections could create technical hassles. Such irritants during the poll season might offset whatever political benefit the NDA government could get through the tax sops for small businesses.
Besides, with the government being firm on sticking to the fiscal deficit target of 3.3% of GDP for the current fiscal, denting GST revenue further is something it can ill afford. The government’s average monthly GST revenue for this fiscal now stands at a little over `94,700 crore compared with around `90,000 crore in FY18. That means a shortfall of 20% for the Centre.
GST collections for July came in at `93,960 crore, down 2.5% from the receipts in the previous month and reversing the recent trend of a gradual month-on-month increase in the mop-up. The rate cuts for 88 items and 24 services announced on July 21 to give relief to MSMEs and customers did have an impact on the collections. The impact of the rate cuts could be more pronounced for August.
Although the council set up a group of ministers (GoM) in its last meeting held on August 4 to formulate a plan for further relief to MSMEs, the panel hasn’t met even once since. Three panels of tax officials — law, fitment and IT — are tasked with assisting the GoM but even these have only met once each and that too without any major outcome.
As the council meets here on September 28 for its 30th session, it’s unlikely to have an interim report from the GoM for consideration.
“Tax officials and the political dispensation are wary of implementing new measures close to general elections. Apart from revenue considerations, we also have to factor in the IT-related issues that may arise after implementation,” a source said. As FE reported earlier, due to similar apprehensions, the government will likely defer the new return-filing system, crucial to check evasion, to after the general elections.
The plan to provide more relief to MSMEs was based on the fact that many small taxpayers were exempt from the excise duty in the pre-GST regime, but their tax liability now is equivalent to a combination of excise and VAT, which is believed to have deprived them of their competitive advantage. Excise duty had kicked in at a turnover threshold of Rs 1.5 crore.
Incentives for MSMEs will come with adverse revenue implications, but sources said even a small quantum of relief would cover a large part of the tax base, given that small taxpayers contribute only a small fraction of the GST revenue. According to official data, registered taxpayers up to turnover of Rs 1 crore constitute over 78% of the total base, but contribute less than 7% to the revenue collection. In absolute terms, assessees below `1 crore pay about `6,000 crore as GST every month while the total collection is over `90,000 crore. So, even if `1,000 crore of this is refunded to them, the tax liability of nearly 80 lakh taxpayers would reduce by 15%.
Source :- Financialexpress.com