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Most states may agree on Rs 25-lakh goods and services tax threshold
November, 19th 2014

The states may be taking a hard stand publicly, but behind the scenes the Centre has managed to make up substantial ground on the proposed goods and services tax (GST).

A large number of states have acceded to the Centre's proposal on a higher annual turnover threshold of Rs25 lakh aimed at giving relief to small and marginal traders and shopkeepers, raising hopes for early finalisation of the new tax framework.

"Barring a few states, most states support a higher threshold," said a government official aware of deliberations on the issue. The empowered committee of state finance ministers had originally pitched for Rs25 lakh as threshold but later changed its stance after a few states such as Rajasthan and Tamil Nadu favoured a Rs10 lakh limit.

This would have meant that any goods seller or service provider with an annual turnover of Rs10 lakh would be liable to pay the tax. That would bring 60% of traders in the tax net but only end up contributing just 2-3% of revenue, significantly increasing the administrative burden as well as the cost of collection.

North Block had written a letter to the panel asking it to review the stance but decided against raising the threshold at its last meeting. But backroom talks with states have yielded results and this augurs well for the new tax structure.The Centre currently levies excise duty above a turnover of Rs1.5 crore and states levy value added tax on a turnover of Rs 10 lakh or lower. Service tax is levied on an annual turnover above Rs10 lakh.

The Centre is keen that small shopkeepers, traders and hawkers do not have to face any hardship under the new tax regime.

"Lower turnover threshold is difficult from the point of view of small traders as well as administration. Moreover, it does not add much to revenue collections," revenue secretary Shaktikanta Das told ET explaining the rationale behind Centre's stance. Tax experts concur with this view, saying a lower threshold will make administration of the new regime very difficult.

"A composition scheme should be brought in for small traders with a turnover of Rs25 lakh to Rs1 crore as a lower threshold will put immense pressure on the tax infrastructure," said Pratik Jain, partner, KPMG India. "As it is, 90% of revenues would come from 10% of dealers and it would make sense to focus on those big ones."

GST seeks to replace a multitude of indirect taxes with one, removing barriers to the movement of goods and services across state boundaries and turning the country into a single market.

The framework was originally scheduled to be rolled out from 2010 but has been stuck due to differences between the Centre and the states.

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