Few takers for easy GST scheme

Only 100,000 dealers opt for composition scheme, which provides flat rates, smooth compliance

A scheme under the goods and services tax (GST) that provides easy compliance and a flat rate to small businesses has had a muted response so far.

The new indirect tax regime was rolled out on July 1. Till now, of the 8 million registrations on the GST Network (GSTN), only 100,000 or 1.25 per cent have opted for the composition scheme.

The deadline for choosing this scheme is Friday. This is likely to be extended.

Entities with an annual turnover of up to Rs 75 lakh are eligible to apply for the scheme, under which they are allowed to pay tax at the rates of 1 per cent (traders), 2 per cent (manufacturers), or 5 per cent (restaurateurs).

“The number (of registrations under the scheme) is quite small. I hope the deadline is extended, as more people would want to opt for it,” said Navin Kumar, chairman, GSTN.

The next opportunity to register for the scheme, if the deadline is not extended, would be next year. Kumar said he was yet to find out how many dealers were availing of the composition scheme under the value-added tax (VAT), but the number was surely more than 1 million.

Another government official, who did not want to be named, said the deadline was likely to be extended. “We might need to give more time for people to opt for the scheme.”

The GST Council had initially allowed entities with an annual turnover of ~50 lakh or less to register for the scheme, but increased the level last month. A dealer registered under the scheme would not be required to maintain detailed records like others.

The government official quoted above said the subdued response was because of the stringent conditions that accompany the scheme.

Only those dealing with goods can register for it; service providers except restaurateurs have been excluded. Those registered under it cannot avail of input tax credit nor issue a tax invoice. As a result, someone buying from a composition dealer will not be able to claim input tax on such goods.

Also, the reverse charge mechanism will not be covered under the scheme. These taxes will be liable to be paid.

Finance Minister Arun Jaitley and Revenue Secretary Hasmukh Adhia have been claiming that the composition scheme will benefit small businesses, but these entities do not seem to be convinced about it.

But, a composition dealer only needs to furnish one return, GSTR-4, on a quarterly basis and an annual return in FORM GSTR-9A, as against three forms on a monthly basis by others.

 

Rukesh Kumar, 22, is running out of patience and finances. He’s whiling away time in his 6’x6’ abode in the Shivamnagar slum here that he shares with a fellow textile worker. The Rs 5,000-odd he’d saved in June, after sending another Rs 5,000 back home in Patna, is almost over.

His employer had, as part of a general protest at the new goods and services tax (GST) levy since July 1 on the sector, shut his dyeing unit. Resulting in no work for 

Kumar and about 400 others.

 

“I am yet to hear anything from our contractor on when the unit will restart. If the money runs out, I will arrange some from home to book my travel back to Patna,” 

Kumar tells Business Standard.

 

He’s been working in Surat for 10 years, having come as 12-year-old. The three-storeyed building in the Shivamnagar slum has a dozen such rooms and two common toilets, occupied by workers on a sharing basis or families. Almost all of whom are waiting for a call from employers to resume work.

Which looks slim at the moment. The Rs 50,000-crore textile industry here — the diamond trade and textiles are the two sectors of note here — employ an estimated 1.5 million. Spread out in spinning, weaving, dyeing and processing, trading and garmenting jobs, through 20,000 manufacturers, including powerlooms, 75,000 traders and 150 wholesale textile markets. Almost all the workers hail from other states — Bihar, Odisha and Uttar Pradesh, among others.

 

While the government and the media’s attention has been drawn towards the textile trading community, trying to make its voice heard through an ‘indefinite’ strike which began on June 16 and ended on July 18, it is the powerloom and processing units that are dying a slow death. The problem A single loom generates an average revenue of Rs 22,500 or Rs 15 per metre for 1,500 metres of weaving in a month. Surat houses 650,000 such powerlooms, thereby generating close to Rs 1,500 crore of monthly revenue. Of this, at least 60 per cent have been shut since a month, a loss of Rs 900 crore so far. The weaving and processing units of the Surat textile industry have been the most hit, since they are largely informal and decentralised, unlike larger textile entities that run composite units, right from fibre or yarn to finished goods.

 

According to Ashish Gujarati, president of the Pandesara Weavers’ Association, which alone has 200,000 powerlooms, the decentralised units get their weaving and embroidery work done through job work or outsourcing. Which, after GST, attracts an 18 per cent duty. The double whammy for the powerlooms is that not only is most of the yarn twisting and embroidery job work unorganised and often done by women from their homes — it might also not merit any input tax refund under GST, as 80 per cent of the raw material is power and labour, which does not come under the input credit net.

 

“The powerloom industry is highly unorganised and decentralised. An 18 per cent duty on the job work as a service put an additional burden of 56 piase per metre; nor can it get input credit (treatment). The government should have allowed time for the powerloom industry to first come under the formal taxation net before levying any duty on it. The current structure favours larger composite textile players, since they don’t have to pay tax at every level of production and processing, unlike the decentralised powerlooms,” says Gujarati.

 

Mehul Patel, who runs a 100 loom unit in the Pandesara GIDC site, has been forced to lay off 16 workers, with five others left to work a single shift of 40 looms. In 

the past month or so, Patel has incurred a loss of Rs 5.2 lakh.

 

“We have stopped getting orders from master weavers who used to outsource work to us. Whatever orders we even fulfilled are lying as inventory at our unit. The additional burden of 56 paise per metre under the 18 per cent GST on job work is impossible for us to bear in this downturn scenario,”he rues. Wrong sequence The industry has been demanding an 18-month vacation to get the entire value chain registered under the GST Network (GSTN) before any tax is levied. Purushottam K Vanga, chairman of the Powerloom Development and Exports Promotion Council, says he has made several representations to the government and is waiting for the August 5 meeting of the GST Council.

 

“Surat represents a major chunk of India’s powerloom industry, with Maharashtra and Tamil Nadu. Over 60 per cent of the 2.5 million powerlooms employing eight million workers nationally are shut. With each passing day, orders are drying, leading to more units shutting shop,” Vanga adds.

 

Gujarati says the statements Union Finance Minister Arun Jaitley has been making do not touch the issues of the powerloom industry. “The FM is talking about composite mills, not the decentralised weaving and processing units of Surat, when he says GST will not have an impact on the textile industry. It is complete discrimination against the decentralised units, which will see a duty credit accumulation that cannot be refunded by the government and multiple filings,” he says.

Meanwhile, despite ending the strike, textile traders have seen almost zero business so far. Ashish Nimbark, a small-time trader in the Millennium Market has even got calls from clients who wish to return goods, to avoid showing fresh stock after the GST onset. Moreover, with only 3,000 of the 75,000 traders registered on GSTN, small-time traders have hardly seen any enquiries being generated in the past month.

 

The Business Standard, New Delhi, 21st July 2017