Tweaking tax rates on various items is the norm at meetings held after the implementation of the goods and services tax (GST) in July. At its last meeting, the GST Council revised a slew of rules, aiming to ease the compliance burden on small and medium-sized enterprises (SMEs) and pacify exporters facing a severe liquidity crunch due to delayed refunds.

To begin with, SMEs with an annual turnover of less than Rs1.5 crore can file GST returns on a quarterly basis, a relaxation from the monthly filing decided earlier. Also, the annual turnover limit under the composition scheme, that enables smaller firms to pay tax at a concessional rate, has been raised from Rs75 lakh to Rs1 crore.

While both these measures would widen the taxpayer base, according to tax experts, the composition scheme should have been extended to service providers (currently, for services, just restaurants are included). Also, akin to the global practice, large firms that contribute the bulk of GST should be allowed to file returns quarterly. This would boost ease of doing business and reduce the burden on the GST Network, which has so far been a big irritant.

“Ideally, quarterly returns with monthly payments shall be extended to all taxpayers with facility claim/set off input credit against monthly calculation of GST liability," Sachin Menon, head-indirect tax at KPMG India, said.

Further, a reverse charge mechanism (RCM) under which large entities were required to pay taxes on purchase from unregistered SMEs has been deferred by six months. This reduces the additional tax burden on larger firms and provides short-term relief to SMEs. “RCM has become a catch-22 situation for government. The purpose to introduce RCM was to widen the tax base; but for smaller firms, who are too small for GST compliance, it became a question of survival," Abhishek Jain, Partner, EY said.

For exporters, removal of interstate GST till March 2018 and the Council’s assurance to clear refund claims for July by 10 October and for August by 18 October, should largely address their concern of working capital blockage. But some are sceptical of the pace at which refunds will be cleared. “As a legacy, getting refunds from authorities has been a challenge involving a lot of duplication in terms of paperwork and administrative inconvenience," Krishan Arora, partner, Grant Thornton India, said. 

Clarity on the mechanism through which the refund claims would be computed is awaited. Linking forms GSTR1 and GSTR 3B for this purpose could be one way out since these documents contain details about the exports and taxes paid on them, said some tax experts.

Going ahead, an e-wallet facility has been proposed for exporters, in which a notional amount as advance refund would be provided. On the basis of this credit, firms can pay IGST and GST, and refunds will be offset against it. This facility is likely to begin from April 2018.

As for rate revision, tax on 27 items including sliced dried mangoes, khakra, plain chapattis, unbranded namkeen, man-made yarn, stationery, diesel engine parts and services such as zari job work have been reduced.

Interestingly, a cut in the rates of many of these items would benefit businesses operating in Gujarat, where elections are due shortly. According to some tax experts, who did not want to be named, given that the contribution of these products to the overall tax collection is quite low, there was no need to tax them higher in the first place.

To conclude, the rush to implement GST has led to much confusion from the day it was introduced; despite a series of revisions, ambiguity on many aspects still persists. Nevertheless, the changes indicate that the government is learning from its mistakes and, in the words of Deng Xiaoping, it is crossing the river by feeling the stones. The latest changes are a huge relief for exporters and SMEs.

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