GST to up compliance cost for small traders

Goods and Services Tax (GST), rates for which were finalised in Srinagar last week, seems to be weighed against many of the small traders who are exempted under the current VAT regime thus increasing their compliance cost, according to tax experts.

While the exemption threshold for Karnataka VAT is turnover of Rs 10 lakh, under GST it is Rs 20 lakh. However, Section 22 of the Central Goods and Services Tax Law says that every person who is registered under an existing law (VAT and Service Tax), shall be liable to be registered under the GST Act. This means, a lot of traders, with annual turnover between Rs 10 lakh and Rs 20 lakh, who otherwise would have been exempted, will have to compulsorily register under the GST Act, which leads to rise in their compliance cost, according to Bengaluru-based tax expert, Mohan Lavi. He further added that there will be no benefit to traders as they would have to unnecessarily file three returns monthly. “This is very unfair for the traders with turnover between Rs 10 lakh and Rs 20 lakh,” Lavi said.

Naveen Rajpurohit, Partner, Indirect Taxes at BDO India, adds that on a plain reading section 29 of the CGST law, it is a problem for these traders as they can’t get their registration easily cancelled under section 29 even if the turnover is less than the threshold limit i.e., Rs 20 lakh, increasing the compliance burden for them. “Also if they don’t get it cancelled within 30 days, it will be difficult for them to cancel it afterwards,” he added. The Section 29 of the law further adds that the cancellation of the registration on application by the traders is at the discretion of officer in charge, in case he does not think it satisfies any condition under section 22 and 24 of CGST.

Karnataka Small Scale Industries Association said that it will raise this issue with relevant people. “Not only this, we are also unhappy with the unneccessary increase in the tax rates under GST,” B Praveen, Honorary General Secretary of Kassia said.

Rule 17(4) further enables traders to apply for cancellation within 30 days of the application of GST, though its approval depends on the officer in charge.