India may move to a dual
Goods and Services Tax (GST) regime next year, but the
Cenvat (excise duty) related exemptions, especially
area-based ones, will not be withdrawn at one go for
ushering in the new tax system.
The Finance Ministry is not in favour of doing away with
all the Central excise exemptions, numbering about 330,
as part of the switchover to the GST regime.
The excise exemptions are only going to be
“grandfathered” – brought down gradually – even if GST
is ushered in earlier, a top Finance Ministry official
said.
The official highlighted that India was a democracy and
certain exemptions will have to be retained. A Task
Force on GST appointed by the Thirteenth Finance
Commission had in its recent report recommended that
area-based exemptions in the case of Cenvat should not
be continued under GST.
The Task Force had suggested that direct investment
linked cash subsidy may be given, rather than area based
exemptions, if it was considered necessary to provide
support to industry for balanced regional development.
The task force report also highlighted that the case for
providing area based exemption was extremely weakened in
the face of its recommendation for sharp reduction on
combined rates of CGST and SGST. A combined rate of 12
per cent (CGST and SGST) has been recommended by the
Task Force in its report.
Currently, industries set up in the North East, Jammu
and Kashmir, Sikkim, Uttarakhand and Himachal Pradesh
enjoy exemption from payment of Cenvat.
The Task Force felt that area based exemptions created
economic distortion and affected the economic viability
of units located in non-exempt areas. They are prone to
misuse and difficult to administer, the Task Force had
said.
Threshold limit
Meanwhile, the Finance Ministry may favour a threshold
limit that aligned with the proposed uniform State GST
threshold of gross annual turnover of Rs 10 lakh both
for goods and services.
The first discussion paper on GST, released by the
Empowered Committee of State Finance Ministers on VAT,
had proposed a uniform State GST threshold of gross
annual turnover of Rs 10 lakh both for goods and
services.
Currently, the threshold prescribed in different State
VAT Acts, below which VAT is not applicable, varies from
State to State.
For the Centre, the discussion paper suggested that the
threshold for Central GST may be kept at Rs 1.5 crore
and the threshold for Central GST for services may also
be appropriately high.
The current thinking in the Central Board of Excise and
Customs (CBEC) is that the threshold of Rs 1.5 crore
proposed for goods was on the higher side. Having a
threshold of Rs 1.5 crore for goods may shrink the tax
base and thereby the revenue neutral rate may go up,
official sources said.
The Finance Ministry is also not keen on having separate
threshold limits for goods and services. “It is
difficult to have two separate threshold limits,”
official sources said.
