One GST, nine taxes

After the 32nd meeting of the GST Council, the government will find itself in a uncomfortable position to defend the catch-line “One Nation, One Tax” for GST.

By giving State governments an option to decide soon between ₹40 lakh ₹20 lakh as the threshold limit, the GST Council seems to be losing its stranglehold over decision making ever so slightly. This could also be due to a change in the Constitution of the GST Council after the results of the recent State elections.

Another reason why defending the catch-line is going to be difficult is because of the introduction of a special composition rate of tax at 6 per cent for services taking the total rates of tax under GST to nine (0 per cent, 0.10 per cent, 0.25 per cent, 3 per cent, 5 per cent, 6 per cent, 12 per cent, 18 per cent, 28 per cent).

Though the composition tax rate for services is much higher than the rate of tax for other composition dealers, pegging the rate at 5 per cent would not have made much difference to GST revenues. Having an outlier rate of 6 per cent (divided equally between CGST and SGST ) gives rise to a risk that the rate can be changed randomly at the Council’s whim and fancy.

Giving further relief to composition dealers, the Council increased the limit of annual turnover in the preceding financial year for availing Composition Scheme for Goods to ₹1.5 crore. Special category States would decide, within one week, about the Composition Limit in their respective States. The compliance under Composition Scheme has been simplified as now they would need to file one annual return but payment of taxes would remain quarterly along with filing a simple declaration. There would be two threshold limits for exemption from registration and payment of GST for the suppliers of Goods i.e. ₹40 lakh and ₹20 lakh. The threshold for registration for service providers would continue to be ₹20 lakh and in case of Special Category States at ₹10 lakh.

The decision to leave out service providers from the threshold exemption limit is bound to contested as negates one of the canons of taxation promulgated by Adam Smith — equity.

Free software

Another surprising decision made by the GST Council was to provide a free accounting and billing software to small taxpayers by GSTN. Though this is a noble gesture, it still remains surprising because taxpayers are going to be wary of any software coming out of GSTN due to issues they faced while working on the GST portal.

With the Council reducing compliance for small taxpayers at each one of their meetings, the question that arises is why would a small taxpayer who pays taxes only quarterly and files returns annually on a composition basis need a billing and accounting software. The only people who would opt for this software would be the ones who feel that there is no harm in taking it because it is free anyway and taking it does not necessarily mandate using it.

The GST Council approved Levy of Cess on Intra-State Supply of Goods and Services within the State of Kerala at a rate not exceeding 1 per cent for a period not exceeding two years. Whether this was a well-thought out decision based on Kerala SGST revenues or just another ad-hoc one is not known. It is important that the cause is met rather than an arbitrary cess being levied.

The GST Council decided to constitute two GoMs to decide on the nuances of GST for the real estate sector and lotteries. The calendar year is going to be an interesting and action-packed one.

The writer is a chartered accountant

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