GST base looks set to be at least 25% wider than earlier tax regime

The number of indirect tax assessees who have applied for registration or registered to pay GST is set to cross the 10 million mark soon, a 25% expansion from the 8 million assessees registered under the earlier tax system for paying excise duty, service tax and state-level value-added tax (VAT), said a senior finance ministry official who asked not to be named.

A wider tax base may lead to increased tax buoyancy, the official said. Tax collection is said to be buoyant when growth in tax receipts surpasses the economic growth rate.

A wider tax base is of immense significance to the government as it will help it stick to the fiscal deficit target of 3.2% for 2017-18 even if some of the non-tax revenue receipts such as disinvestment proceeds, payments from the telecom industry for spectrum and other levies fall below the levels estimated at the time of making the budget.

“The registration process under the GST Network (the company that processes tax returns) is going on very well. It may cross the 10 million mark soon," said the official. On 4 August, finance minister Arun Jaitley said 7.2 million dealers of the 8 million under the old regime have registered under GSTN, while an additional 1.3 million new dealers have also registered under GSTN.

On Wednesday, the cabinet committee on economic affairs chaired by Prime Minister Narendra Modi cleared a Rs27,413 crore budgetary support to make the transition to GST easier for factories set up in hill states of Jammu & Kashmir, Uttarakhand and Himachal Pradesh, and in northeastern states. Despite the overhaul of the indirect tax regime on 1 July, more than 4,200 industrial units located in these remote areas will continue to receive the tax benefits promised to them when the authorities wooed them to invest there.

The budgetary support will let the central government refund part of the GST these units pay. It will ensure that the excise duty exemption available to them in the earlier regime continues in a modified form. An official statement issued after the cabinet meeting said that the refund scheme is applicable from 1 July 2017 till 31 March 2027.

The excise duty exemption available in these states comes to an end in different years but all those who have set up units before that terminal date will get the benefit of exemption for the subsequent 10 years. The benefit will be in the form of refund in GST regime.

The official statement said the share of GST which goes to the Union government—central GST and the central government’s share of integrated GST (IGST) levied on inter-state commerce—will be refunded under the scheme. Operational guidelines of the scheme will be notified in six weeks by the department of industrial policy and promotion, the statement said.

Jaitley, who briefed reporters about the cabinet decision, clarified that the central government will refund only 58% of the taxes it collects from these units as it transfers 42% of its tax proceeds to states under the formula recommended by the 14th Finance Commission. The respective states have to take a call on refunding the 42% of GST proceeds they get from these units.

“The refund benefit, it seems, will be available up to 2027 and may be customized separately for different industry sectors," said Abhishek Jain, tax partner, EY.