The GST breather given to small and medium enterprises (SMEs) and exporters will address their liquidity issues, improve efficiencies and act as a shot-in- the-arm for the economy as a whole, analysts said.
The GST Council on Friday hiked the threshold turnover for the composition scheme that allows SMEs to pay 1-5% tax without going through tedious formalities.
The government's move to relax IGST for six months and faster processing of refunds for exporters would address their liquidity issues and improve business efficiencies in the short-term, analysts at ratings agency Crisil said.
"Also, reducing compliance burden for SMEs would widen the tax base under GST," it said in a report. The government has also eased the filing process for SMEs with a turnover of Rs 1.5 crore from monthly to quarterly. The turnover limit for availing the composition scheme has been hiked from Rs 75 lakh to Rs 1 crore, enabling SMEs to pay taxes at concessional rates.
Both these moves would widen the taxpayer base, according to Crisil. The government had earlier mandated reverse charge mechanism under which large entities pay taxes on behalf of their supplies from unregistered SMEs, creating an additional tax burden on large entities. Hence, they were preferring not to route through unregistered SMEs.
"The latest GST Council meeting removed the reverse charge mechanism up to March 2018, which provides a short term relief to SME," Crisil added. Industry experts also applauded these initiatives.
"With measures to ease liquidity for exporters, improving ease of compliances for small tax payers, deferment of certain onerous provisions such as e-way bill, reverse charge and rationalisation of rates including man-made yarns, the Council meeting is a shot-in-the-arm for the economy," said Priyajit Ghosh, partner-indirect taxes at KPMG India.
The government has also provided some measures to give liquidity respite to exporters, which has come as a welcome move by way of speedier refunds of input credits.
Lower GST rate, returns and benefits to exporters provide partial relief to small
In the GST Council meeting, the Council announced a series of changes in an attempt to provide relief to traders, SMEs and small businesses. While these measures are aimed at providing relief in compliance to small businesses, a lot more is need to be achieved including fixing the GSTN technical issues as well as helping small businesses coping with the issues of blocking of working capital.
Vijay Kalantri, President, All India Association of Industries (AIAI) said, “After 100 days of GST roll-out, these partial relief measures are welcome. However, these are not sufficient. The last one year has been particularly challenging for MSMEs struggling with after-effects of demonetization, to blocking of working capital due to GST. The government must look forward to reducing GST tax slabs to only 2 from the current 4 and should push to bring petroleum products under GST. The RBI did not provide any relief to businesses with status quo on interest rates. In such a situation proving impetus to economy with proactive measures should be the priority of government.”