GST to have significantly smaller assessee base despite high exemption threshold

While the country gears up to usher in the era of GST [Goods & Service Tax] which will subsume a number of Central Government and State Government indirect tax levies, the recent article that appeared in the Financial Express dated 11 May 2017, set out below, sheds light on the volume of assessees likely to come under its ambit and its implications on the widening of tax base which was listed among its benefits.

To start with, GST will have an assessee base significantly smaller than the combined universe of central excise, service tax and state VAT, the three principal taxes to collapse into GST. The shrinking of the base has primarily to do with the GST turnover threshold (Rs 20 lakh), which has kept lakhs of the existing service tax and VAT assessees out of the proposed comprehensive indirect tax’s ambit.

So, Goods and Services Tax Network (GSTN) chairman Navin Kumar told FE, the 60 lakh GSTN registrations so far is closer to potential than many would think. The excise/VAT/service tax base is around 80 lakh at present and two-thirds of these units won’t have to pay GST given the higher threshold. That shows how lakhs of small businesses have scrambled to join the new system, even as their tax liability will be nil. The lure is obviously the input tax credit system and this, analysts said, shows how GST will eventually help broaden the tax base.

While over 80% of the VAT and central excise assessees have migrated to GSTN till April 30, only 45% for service tax assessee have joined and a significant number of VAT assessees too have kept themselves out.

Migration for VAT assessees started in November last year but the same was opened for central excise and service tax in the middle of January, which gave units lesser time to migrate. Even though we don’t exactly know the reasons for the taxpayers’ preference (to not register), the lower level of migration could be due to the higher exemption limit,” Kumar said.

On the revenue front, the government has nothing to worry as taxpayers with turnover above Rs 1.5 crore contribute 90% of the indirect tax revenue, even as 93% of the service tax assessees and 85% of the VAT taxpayers have a turnover below that level.

At present, there are around 65 lakh value-added tax assessees, 26 lakh units that pay service tax and 4 lakh that pay excise duty. The exemption threshold for service tax is Rs10 lakh, for excise Rs 1.5 crore, and in the case of state VAT, the entry level is between Rs 5 lakh and Rs 10 lakh across states.

Although GSTN is a not-for-profit company, Kumar said that it is not barred from earning revenue from the services it renders. GSTN, he added, would be paid some Rs 550 crore annually by the Centre and states (it levies no user fee for industry), which is roughly equal to Rs 100 per registrant per month.

“Initially, we had proposed that whoever uses the system should pay. However, the states governments didn’t agree with this and so it was decided that government will pay on behalf of the users on the basis of bills raised on the number of users,” Kumar said. Currently, majority stake of the company is owned by private and public financial institutions with 51% equity, while state and central governments together hold 49%.

Additionally, as the company generates enough data over 12 months or so, GSTN will be able to employ application to detect tax evasion and fraud in the system. “You can profile a particular tax payer with data analytics using machine language, and detect tax evasion. This is also a part of the GSTN mandate,” Kumar added. While the window for GSTN migration was discontinued on May 1 for technical reasons, a short migration window will be opened closer to July 1 for more units to join.

The system is currently being tested in the beta phase and it will soon simulate real-world transactions, assuming a user base of 80 lakh generating monthly invoices of 300 crore.