GST: Half of taxpayer base had the option to stay out, but chose otherwise

Over half of the 96 lakh regular taxpayers registered for the goods and services tax (GST) have an annual revenue below the Rs 20-lakh threshold where the tax kicks in, confirming the ability of the year-old regime to promote compliance.

Over half of the 96 lakh regular taxpayers registered for the goods and services tax (GST) have an annual revenue below the Rs 20-lakh threshold where the tax kicks in, confirming the ability of the year-old regime to promote compliance. Of course, these small businesses that have got themselves registered have a negligible share in the government’s GST revenue — even those with a turnover up to Rs.5 crore contribute just 5% — but they have still chosen to be in the tax ambit.

The incentives for being in the tax chain are many. Availability of input tax credit and the fact that registered suppliers are preferred by larger procurers over unregistered ones are the main ones.

That even the pre-GST (VAT/Cenvat) regime had a taxpayer base of over 80 lakh (the VAT turnover threshold was in the Rs.5-10 lakh range, and service tax started from Rs.10 lakh) also may be a reason for a section of the businesses to sign into GST, despite a higher turnover cut-off. Under-reporting of turnover by considerable sections of these taxpayers cannot, however, be ruled out, given the abysmally low amounts of taxes that they pay.

In the pre-GST regime over 60% of assessees under central (excise and service) and state tax (VAT) laws were reporting less than Rs.20 lakh as annual revenue.

“The fact that 90% of the GST registrants have a turnover of less than Rs.3 crore signifies that while the tax base is expanding, the tax collections from this segment will take some time to increase. Several small businesses would have come into the GST net as they deal with larger businesses which would have insisted on dealing only with registered dealers,” said MS Mani, partner, Deloitte India.

However, tax officials admitted that such a large portion of taxpayers under Rs.20 lakh revenue suggested that massive under-reporting of income was a norm as it was suspected that the average revenue for even small and medium enterprises was between Rs.20 lakh and Rs.1.5 crore.

“Majority of GST registrants reporting an annual turnover of fewer than Rs 20 lakh would signal towards rampant under-reporting and underpayment of taxes. GSTN (GST Network, the IT back bone of the tax) should be assigned an additional task to further analyse the data and connect current and historical data with PAN to formulate an exception report for jurisdictional officers,” said Rajat Mohan, partner at AMRG& Associates.

The suspicion of under-reporting of income by taxpayers has also been raised with respect to composition dealers, over 18 lakh in number. In January-March quarter, the government received Rs 579 crore from 12 lakh composition-scheme taxpayers. This means that average annual revenue of close to Rs 20 lakh by this class of taxpayers. While this was still a tad below the GST’s lower threshold of Rs 20 lakh, it was much higher than the average turnover of Rs 8 lakh and Rs 9 lakh reported by such assessees in the July-September and October-December quarters, respectively.

The government had estimated large-scale evasion among composition dealers after it collected a paltry sum for the first quarter under GST. If the sales reported by these units were correct, most of them would have fallen below the threshold for GST registration. Obviously, there was massive under-reporting of sales.

The composition scheme is open for all taxpayers with annual sales between Rs 20 lakh and Rs 1.5 crore. The scheme offers easier compliance requirements including facility to file simple quarterly returns and pay a fraction of sales as GST, rather than pay the tax at item-wise rates. While earlier different rates of tax for composition-scheme manufacturers, traders and restaurants existed, the GST Council in November had reduced the rates to flat 1% for all categories and this became effective from January.


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