GST AND ITS IMPACT ON SMALL SCALE INDUSTRIES

 

Small scale industries play a significant role in the overall growth of an economy. This industry is mainly specialized in the production of consumer commodities. SSIs generate huge employment due to the utilization of labour power for the production of goods. In a developing country like India where unemployment is a major problem; these industries pave the way for employment of skilled and non-skilled persons. The implementation of GST is certainly going to affect this sector and the employees associated with it.

 

Any tax-regime should ensure such an environment in which the proper growth of small scale industries may be assured. The First Discussion Paper (FDP) produced by the Empowered committee of state finance ministers and report of the thirteenth finance commission’s Task Force have provided some important suggestions with respect to this sector.

 

Imposition of CGST and SGST as per abovesaid reports on turnover of goods and services are as under:

 

Turnover of goods

Turnover of services

Applicable taxes(according to FDP)

Below 10 lakhs

Below 10 lakhs

Both SGST and CGST are not applicable

Between 10 lakhs and 150 lakhs

Between 10 lakhs and ‘Y’ figure

Only SGST

Above 150 lakhs

Above ‘Y’ figure

Both SGST and CGST

 

But the Task Force is of the view that the small dealers (including service providers) and manufacturers should be exempted from the purview of both CGST and SGST if their annual aggregate turnover (excluding both CGST and SGST) of all goods and services does not exceed Rs.10 lakhs. However, those below the threshold limit may be allowed to register voluntarily to facilitate sales to other registered manufacturers / dealers, so that the cascading effect or tax may be avoided, if desired.

 

Further, the Task Force has suggested that to reduce administrative and compliance burden, small dealers with annual aggregate turnover of goods and services between 10 lakhs to 40 lakhs may be allowed to opt for a compounded levy of one percent, each towards CGST and SGST. However, no input credit should be allowed against the compounded levy or purchases made from exempt dealers. Although the compound levy scheme will make the day to day working easier, yet the cascading effect of tax will not be removed by the compounded levy. So the compound levy scheme should not be compulsory.

 

At present the small scale industries are entitled to exemptions from payment of CENVAT in respect of their turnover upto 1.5 crore. However, there is no such threshold exemption in respect of state level VAT. As per the recommendations of Department of Revenue (DOR), the threshold for goods and services should be common between the Centre and the State, on one hand and between goods and services, on the other. Also the DOR has suggested that the annual turnover threshold could be Rs. 10 lakhs or even more than that. This threshold exemption should not apply to dealers and service providers who undertake inter-state supplies. This would not be in the favour of small dealers, as it will restrict their growth or force them to get registered. Hence a provision of threshold limit should be there to allow the small dealers to indulge in inter-state sale.

 

Conclusion:

 

Based on the above discussion, we can say that the different bodies have not reached on any consensus while the DOR seems nearer to the suggestions of the task force. As SSIs absorb surplus amount of labour in the economy and helps the system in scaling down the extent of unemployment as well as poverty; every measure should be taken in the forthcoming GST to protect it.