From quarterly returns to exporters' e-wallet: 5 steps GST Council can take

The GST Council is likely to give a major relief to exporters as well as small and medium enterprises

The 22nd GST Council meeting is underway in New Delhi on Friday and easing the teething pains brought in by the new tax regime in order to give the economy a boost amid the current slowdown is the reported agenda on the plate. 

Apart from last year's shock demonetisation move, criticism of the Modi government's handling of the economy has centred around the hasty implementation of the GST regime, which has left exporters as well as small and medium enterprises (SMEs) in a bind. Friday's meeting, as reported earlier, is expected to result in a major relief for the aforementioned groups.

Economic growth plunged to 5.7 per cent in April-June of the current financial year (FY18), the lowest in the three-year rule of the Modi government so far, thanks to demonetisation and destocking by companies amid jitters before the launch of the goods and services tax (GST) regime. 

How serious is the government in tackling the issue? Perhaps the fact that the meeting comes after the three most powerful persons in the current political dispensation — Prime Minister Narendra Modi, Bharatiya Janata Party (BJP) President Amit Shah, and Finance Minister Arun Jaitley — huddled together to discuss economic and political issues is an indication. As reported earlier, Shah cut short his visit to Kerala and Jaitley skipped a World Economic Forum event in Delhi to attend the meeting.  

Here are the five possible outcomes of the meeting that could reinvigorate the economy

1) Quarterly returns: As reported earlier, the Council is likely to make filing returns for SMEs easier. Those with an annual turnover of up to Rs 1.5 crore will be allowed to file quarterly returns. 

As reported on Thursday, as the deadline for filing the final returns for the first month of GST nears, the Sushil Modi-led Group of Ministers has asked the IT backbone provider, the Goods and Service Tax Network (GSTN), to send reminder text messages to two million businesses that have not submitted their tax forms. 

2) Bringing more businesses under the composition scheme: The composition scheme, which allows a flat rate and easy compliance, may be relaxed to rope in those with an annual turnover of up to Rs 1 crore against the current Rs 75 lakh. 

As reported earlier this week, availing of the benefits of a flat tax rate and easier compliance, the number of businesses opting for the composition scheme under the GST has gone up by 50 per cent. About 540,000 taxpayers have opted for the scheme under the new window of about 14 days till September 30, compared to one million as of August 16, the earlier deadline. The number of taxpayers under the composition scheme, at 1.5 million, is about a sixth of the 8.9 million assessees under the GST.

The scheme is applicable to certain categories of small taxpayers — traders, restaurants, and manufacturers/suppliers. One per cent GST is levied on traders, two per cent on manufacturers, and five per cent on restaurants. The eligibility threshold was raised to Rs 75 lakh, from Rs 50 lakh decided earlier. A composition dealer needs to furnish one return, i.e., GSTR-4, on a quarterly basis and an annual return in Form GSTR-9A. However, anyone availing of the scheme cannot claim input tax credit. Also, such a dealer cannot issue a tax invoice. Hence, someone buying from a composition dealer cannot claim input tax on the goods bought. 

3) Rate cut for 60 items: In a move that could boost household spending during the pre-Diwali season, the GST Council might also cut rates on close to 60 items, Moneycontrol reported. 

According to the report, the tax rate cuts are aimed at helping the economy out of the current slowdown. Citing an official who spoke on the condition of anonymity, the report said that the government would propose rate cuts for many items that come under the highest tax bracket of 28 per cent. Further, the rates on several goods and services that fall under the 18 per cent bracket might be reduced to 12 per cent.

4) E-wallet and speedy refunds for exporters: The GST Council is expected to look at ways to provide relief to exporters in terms of faster refunds as well as compliance.

A committee headed by Revenue Secretary Hasmukh Adhia is expected to submit a preliminary report to the council on steps needed to provide relief to exporters. The council will then recommend some relaxation so that the working capital of exporters that is locked up in refunds is released.

As reported earlier, exporters say more than Rs 65,000 crore of capital is stuck because they have to first pay the integrated goods and services tax (IGST) and then file for reimbursement paid on imports that are accounted for in exports. This was not the case in the earlier tax regime. 

During Friday's meeting, the Central Board of Excise and Customs is also set to announce that it is ready to release IGST refunds to exporters from October 10.

Last week, in a meeting with Finance Minister Jaitley, the Federation of Indian Export Organisations (FIEO) had suggested the idea of instituting an e-wallet mechanism for SMEs and complete exemption for merchant exporters.

"Government may consider introduction of e-wallet for exporters in which, based on the preceding year’s exports and an average GST rate, e-currency is credited to exporters’ accounts. Like a running account, money may be debited from the e-wallet when duty-paid supplies have to be undertaken and the amount may be credited when the proof of export is made available from ICEGATE," FIEO said in a statement to finance ministry officials. 

According to the Times of India, this proposal, which several state finance ministers are in favour of, will be cleared during the meeting. 

5) Doing away with reverse charge for some time: The suspension of the reverse charge mechanism for MSMEs till March next year is another part of the relief package, Livemint reported.  

As reported earlier, GST's introduction had an effect akin to setting a cat among the pigeons for thousands of MSMEs across the country. This was largely on account of a provision to collect and pay tax on behalf of unregistered vendors and suppliers under the reverse charge mechanism (RCM). A concept borrowed from service tax, RCM is now applicable also to supply of goods. However, higher compliance costs, including larger working capital requirement, has been causing a shakeout in the procurement chain of businesses, with smaller businesses, operating largely in the unorganised space, losing out.