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At
present, all taxes and levies have separate threshold
levels—Rs 1.5 crore for excise levy, Rs 10 lakh for
service tax and individual state limits for value-added
tax (VAT), such as Rs 2 lakh in Karnataka and Haryana to
Rs 50 lakh in Punjab.
GST will replace all these taxes, with a likely uniform
exemption limit of Rs 10 lakh.
The low threshold limit for GST will bring more goods
producers and service providers under the tax net and,
conversely, a wider base will help keep the rate lower
and make it more efficient.
“Threshold value needs to be low for a broader tax base
and a lower revenue-neutral rate. However, a lower
threshold value needs to be balanced with sector needs
and historical perspective,” says Bipin Sapra, partner
at Ernst & Young.
The GST is a consumption tax that replaces all indirect
taxes including excise duty, service tax, countervailing
duty and special additional duty and state taxes
including VAT, entertainment tax, luxury tax, purchase
tax, entry tax and other local levies.
The new tax will create a seamless pan-India market for
both manufacturers and service providers with the right
to offset state taxes paid on inputs sourced from
another state. GST will also be applicable on imports
while exports would be zero-rated.
Small units will be only marginally hurt by a low
exemption limit of Rs 10 lakh as they can claim credit
for taxes on inputs. Today, a company availing excise
exemption cannot claim credit for tax paid on inputs.
North-eastern states that have limited industrial
activity and wanted a lower threshold would be
compensated for any revenue loss, according to the draft
paper circulated to states and the Centre last week for
their comments by the empowered committee of state
finance ministers. The draft framework would be
fine-tuned after the panel’s views are incorporated and
made public by early November.
However, tax experts say Rs 10 lakh may be too small a
threshold and recommend a higher base of Rs 40-50 lakh.
“For small-scale producers, a composition scheme is
preferable as they would not be required to maintain
detailed records and tax incidence would be lower,” says
R Muralidharan, executive director at
PriceWaterhouseCoopers. Under a composition scheme, a
producer can pay a flat rate of tax without maintaining
records but the unit cannot avail the facility of input
tax credit.
Small manufacturers may find the proposal difficult to
swallow. “While it is in the interest of MSMEs to become
part of the VAT chain as it is an efficient way of
conducting business, the cost of compliance for very
small firms that carry out jobwork for bigger
manufacturers could go up substantially,” says Anil
Bharadwaj, secretary general of Federation of Indian
Micro and Medium Enterprises.
As per the draft paper, GST will have two components on
the lines of the Canadian model. This dual GST — a
central GST and a state GST — will have two rates: a
floor rate, or lower rate, and a standard rate, or the
higher rate.
Source
:
Economic Times, India, dated 21/10/2009 |
