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Govt Introducing special sheme for Small scale industries

Darshan (Finance Executive) (46 Points)

05 January 2011

Govt likely to End Excise Duty Relief To Small Scale Industries, As It Readies for GST Rollout

Currently, small scale industries with annual trunover of upt to 1.5crore are exempt from excise duty. But the GST Propose to bring down the exemption threshold for the levy of tax to 10lakh

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U S Sharma (glidor@gmail.com) (21063 Points)
Replied 05 January 2011

Publication: The Economic Times Delhi;

Date: Jan 4, 2011;

Section: EFM;

Page: 9

Special scheme for SSIs in works on way to GST

Govt Likely To End Excise Duty Relief To SSIs As It Readies For GST Rollout

Deepshikha Sikarwar NEW DELHI

    THE forthcoming budget is likely to end the excise duty relief available to small scale industries as the government prepares the ground to roll out the goods and services tax (GST).

    These industries, however, will have the option of migrating to another scheme with lower tax and minimal compliance burden.

    "The Centre is keen to roll out some components of the goods and services tax in the indirect taxes this budget itself and in this light a composition scheme is being examined," said a government official privy to the deliberations. The idea is to expand the tax base without hurting small producers in line with the GST.

    Under the proposed composition scheme, asmall scale manufacturer would be required to pay a much lower rate of duty than the prevailing 12% Cenvat rate with a minimal compliance burden. This flat rate could be as low as 1% of the total turnover. However, the manufacturer will have the option to pay full duty and claim credit for tax paid on inputs. The scheme is consistent with the proposed GST.

    Currently, small scale industries with an annual turnover of up to . 1.5 crore are exempt from excise duty. But the GST proposes to bring down the exemption threshold for the levy of tax to . 10 lakh.

    The government is keen to lower the turnover threshold to expand its tax base.

    This means a unit with a turnover between . 10 lakh and . 1 crore can opt for a much lower compounded levy on its taxable turnover instead of the excise duty of 12%.

    A manufacturing unit opting for the composition scheme will not be required to maintain records, but it will not get the facility of input tax credit

    Experts say such a scheme will make the transition to GST easier. "Composition scheme may not be ideal from a credit flow perspective,” said Bipin Sapra, partner at accounting firm Ernst & Young. “But it can work as a transitionary mechanism for the small taxpayers to get into GST framework."

    States have demanded that the Centre continue with the turnover threshold of . 1.5 crore for its component in GST, but the Centre has been firm on keeping it common for both Central and state GST at . 10 lakh.

    The empowered committee of state finance ministers had suggested a composition scheme for entities having turnover below . 50 lakh and a floor rate of 0.5% across states.

    Under the current value-added tax regime there is a compounding scheme for businesses below a turnover of . 50 lakh with a flat tax rate of 1% in many states. But it has not been much of a success as floor rate of the valueadded tax itself is low at 4%.

    However, the industry that has enjoyed complete exemption until now, may find the changes hard to gulp. "We think the sector would strongly react to composition scheme being contemplated for units having turonover from . 10 lakh to . 1 crore,” said Anil Bhardwaj, secretary general of small scale producers association, FISME. “It would bring in large number of small enterprises into excise net, which are currently in exemption."