SMEs have not not been enthused by the Centre’s relief package for the sector, including a composition scheme and suspension of reverse charge mechanism up to March 31, 2018.

According to industry representatives, the package is more suited to retailers and traders, essentially the Business-to-Consumer segment — which has not been much impacted by GST — rather than manufacturing SMEs and ancillary units. The package provides little relief to SMEs which actually need the support, they say.

The composition scheme provides lower tax rates than the prevailing level for businesses with an annual aggregate turnover of ₹1 crore. For traders, it is 1 per cent, manufacturers 2 per cent and restaurants 5 per cent. Reverse charge under the CGST Act and the IGST Act has been suspended up to March 31.

Businesses with a turnover of up to ₹1.5 crore have been provided a relief by being allowed to file GSTR-1, 2 and 3 on a quarterly basis with filing and payments from October to December 2017. Payment of GST on receipt of advance on account of sale has been dispensed and can be paid at the time of supply.

According to VS Narasimhan, National Honorary Secretary, Federation of Association of Small Industries of India, the reverse tax mechanism should be suspended permanently rather than up to March 31, 2018. The reverse charge discourages larger units from transacting with smaller players as the tax burden falls on the larger player.

The turnover limit should be increased to at least ₹3 crore to cover units that are at the lower end of the SSI (Supplemental Security Income) bracket.

Protecting micro units with a turnover of up to ₹20 lakh is important as this segment supports self employment and generates jobs.

Tax payment

In addition, SSI units which avail themselves of input tax credit have to pay and file returns within 20 days of the closing of the month. But large units, including PSUs, delay payments by up to 90 days to ancillaries. SSI units should be allowed to pay GST on a quarterly basis along the lines of the composition scheme, he said.

R Subramaniam, Vice-President - Coimbatore Region, Tamil Nadu Small and Tiny Industries Association, said the composition scheme, at best, may reduce paper work, and help traders and restaurants, but is not beneficial to manufacturers. It may prove more expensive for small and tiny manufacturing units.

As a composite assessee, a manufacturing unit will continue to pay input tax, but cannot collect tax from the buyer. At the composite rate of 2 per cent, the outgo may often be higher and eat into the manufacturers margin compared with taking input credit and paying the tax under GST, he felt.

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