GST panel to take up Rs 10-lakh threshold level today     

Even as the empowered committee (EC) of state finance ministers is slated to unveil the discussion paper on the goods and services tax (GST) on Tuesday, one of its key proposals—the threshold for applicability of the tax may be up for review. The EC has proposed a uniform threshold at both Centre and state levels of an annual turnover of Rs 10 lakh for goods and services.

Though the logic of the proposal is to keep the tax rates low through a wide tax base, both the Union finance ministry as well as some states, especially those in the north east are worried about the impact of the proposal. The issue is expected to be taken up when the empowered committee meets with Union finance minister Pranab Mukherjee on Tuesday to finalise the GST model.

With the proposed reduction in the exemption limit, the Central Board of Excise and Customs (CBEC) may not have the wherewithal to cope with the massive increase in the taxpayer base. At present, the threshold for central excise duty is Rs 1.5 crore. About 10 lakh dealers are registered with the CBEC for payment of the tax.

Tax experts estimate that with the GST threshold to be lowered to Rs 10 lakh, another 25 lakh to 30 lakh dealers would be added to the Centre’s assessee base. Such a three-fold increase in the taxpayer base would put enormous pressure on the CBEC’s enforcement machinery.

While the empowered committee has proposed that the states will collect GST on the Centre’s behalf from all units with an annual turnover of less than Rs 1.5 crore, the Union finance ministry is not too keen on the option.

Meanwhile, a number of states, especially those in the north east like Assam and Arunachal Pradesh are worried that the Rs 10 lakh threshold would severely erode their taxpayer base. At present, the threshold for value added tax (VAT) payment varies in different states but is in the range of Rs 2 lakh to Rs 10 lakh.

While for most states, it is Rs 5 lakh, for the north eastern states it is Rs 2 lakh only. North-eastern states are worried that the proposed GST model could keep about 90% of the assessees out of the tax ambit. Analysts say that there would be significant erosion of the tax base in many other states as well—not just the under-developed ones. The proposed move would exclude most tax payers from the state GST net, as about 60% to 70% of those paying VAT have an annual turnover of Rs 3 lakh to 5 lakh.

Tax experts anticipate that the states may be given more freedom to decide their threshold for the proposed tax. “To get the full benefits of GST and participation of all states, a low threshold is unavoidable. But you have to balance all these requirements and it’s possible that states may have a lower threshold than what’s proposed at present,” said Satya Poddar, partner, Ernst and Young.

“The exemption from GST should be given by the empowered committee as a general guideline but should be left to states that can decide depending on their structure of dealers. The structure of dealers differs considerably in the north east and special category states, vis-a-vis developed states,” pointed out Mahesh Purohit, director, Foundation for Public Economics and Research.

Source : Financial Express, dated 10/11/2009