Stay the course

| Updated on January 11, 2019 Published on January 11, 2019

GST sops for MSMEs are welcome, but constant changes are best avoided

The GST Council, by raising the threshold exemption rate for goods suppliers from ₹20 lakh to ₹40 lakh, has thrown a major line of relief to the MSME sector. This comes on the heels of relaxation of NPA norms for the sector, hit by demonetisation and later by the abrupt introduction of provisions such as reverse charge under GST. With elections drawing near, the Centre seems focussed on making amends. Even so, the threshold for services remains the same at ₹20 lakh. With service providers being predominantly small-scale, the attempt is to expand the universe of registered units. In an effort to simplify compliance formalities for the MSMEs, the limit for the composition scheme has been raised as well. While the focus on industry’s supply side constraints is to be welcomed, it should not lead to ad hoc measures that go against the basis of GST.

A case in point is the proposed introduction of a 6 per cent rate for services suppliers with a turnover of ₹50 lakh in 2017-18. This would only increase the number of rates under GST to eight, going against the idea of minimising the number of rates. By allowing the States to decide whether they want to raise the exemption threshold for goods suppliers to ₹40 lakh or stay with ₹20 lakh, the Council has taken a big step away from creating a uniform set of tax rules across States. Manufacturing States may opt for a higher exemption limit. This seems like a concession to States, otherwise peeved by the inadequate revenue collections and IGST transfers. It is arguable whether allowing a cess of 1 per cent on the intra-State supply of goods from Kerala will really help in raising the sort of funds the State really needs.

The Council should avoid constant chopping and changing of rates and rules. Hundreds of notifications have been issued in the 18 months since GST came into effect. A committee has been set up to look into whether residential real estate should be allowed a composition scheme, possibly as a response to reports of indifferent compliance in the sector. However, a lowering of rates from 12 per cent at present to possibly 5 per cent sans tax credit should not lead to unscrupulous builders claiming higher input costs and arm-twisting buyers to pay up, whether in black or white. At another level, it is not clear how the anti-profiteering provisions are to be implemented. These should not be used to harass producers. The GST Council should arrive at a transparent set of guidelines on rates, while consulting all stakeholders concerned as it seeks to make a change. It must progressively simplify procedures, rates and operations.

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Published on January 11, 2019
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