The government has decided to re-open registrations for small businesses under the composition scheme, after the plan received lukewarm response, with only 10 percent of total taxpayers under Goods and Service Tax (GST) opting for it.
“We (GST Council) have decided that those who have migrated as well as new (taxpayers) can up to September 30 migrate further to the composition scheme,” Finance Minister Arun Jaitley had said after the GST Council meeting on Saturday.
Composition scheme is an alternate method of taxation, which allows small businesses with annual turnover up to Rs 75 lakhs, to pay tax at a concessional rate, as well as reduce the compliance cost. The revenue threshold is Rs 50 lakhs for dealers across nine states including Arunachal Pradesh, Nagaland and Tripura among others. The enrollment into the plan is optional.
The number of dealers opting for the composition scheme under GST was 9.38 lakhs as of August 16, which marked the deadline towards signing up for the scheme. The previous cutoff date for the scheme was Jul 21, which was extended by nearly four weeks.
As of July 30, dealers opting for the scheme were 5.12 lakh, which almost doubled to 9.38 lakhs in two weeks, a sharp contrast from mere 1 lakh registrations as on July 21. The numbers indicate a pickup in response after a shift in the deadline.
Re-opening registration for the composition scheme also indicates the government’s plan to bring three crore tax payers under the GST net. Currently, more than 72.5 lakh excise, service tax and VAT payers have migrated to GST, which was implemented from July 1.
Around 21 lakh new registrations fall under the ambit of the new indirect tax system, taking the total registrations to over 93 lakh.
A composition dealer can pay tax at a prescribed percentage of the business’ turnover every quarter, instead of paying tax at normal rate. Under the scheme, traders, manufacturers and restaurants can pay tax at 1, 2 and 5 percent, respectively.
Compliance burden for taxpayer would reduce as they will have to file returns only once in a quarter as against monthly returns that needs to be filed by other normal taxpayers. However, dealers cannot avail input tax credit, unlike a normal taxpayer.
According to officials in the finance ministry, the response of the dealers towards composition scheme was muted as people were unaware of the benefits of opting for the scheme.
The main reason for a poor response for the scheme, officials say is that exports are considered inter-state trade, which is not covered under composition scheme.
Another reason is dealers opting for the flat rate scheme will have to pay tax for certain items exempted under GST, which may not be favourable for them.