Differences remain between Centre and states over an appropriate threshold rate for the proposed national goods and services tax (GST). A committee of finance ministry and state government officals has been set up to look at it.
The governments of Karnataka, Uttar Pradesh and Rajasthan want a lower limit of Rs 10 lakh gross annual turnover. The Centre and some other governments, such as of Punjab and Delhi, prefer Rs 25 lakh. GST would apply for units having a turnover above the threshold.
According to government data on the situation three years earlier, units in the Rs 10-25 lakh range of annual gross revenue comprised 60% of all dealers but contributed only 2% of average national tax revenue. The situation varies across states.
Chief economic adviser Arvind Subramanian wanted an even higher threshold at Rs 40 lakh in his panel’s GST report, saying this would better ensure compliance.
Under GST, gross turnover will be considered for the exemption limit, as against net taxable income in the current regime.
“Even we feel the limit should be higher. Rs 10 lakh means nothing with inflation all around. In GST, we will look at gross turnover and even a small fruit seller will be earning that much,” argued an official. “We are collecting the latest data and will update and study the revenue implications for states. But, it is unlikely to be a siginificant change from the data we had three years ago.”
Currently, small scale industries with annual turnover up to Rs 1.5 crore are exempted from central excise duty but will lose the benefits under a GST regime.
Northeastern states will have separate thresholds, to be considered in a separate meeting. The Centre has proposed one of Rs 10 lakh for the region.
The Subramanian panel felt a higher threshold would minimise the burden on small payers, beside achieving social objectives, as poorer households are more likely to buy from smaller outlets.
From the data on corporate income tax, it said, for turnover in the Rs 25-40 lakh range, there are 326,000 registered entities, accounting for only Rs 1.04 lakh crore in total turnover. “The benefit-cost ratio of minimising the compliance burden relative to the revenue forgone may need to be considered,” it said.