Robust GST revenues needed for bolder tax reforms

When the government rolled out the GST in the middle of last year, it was pretty confident of the new indirect tax regime bringing in desired revenues to help reduce direct taxes significantly for the salaried class.

In the first month of GST implementation, it did happen. The GST collection was a whopping Rs 92,283 crore in July, and a jubilant Finance Minister Arun Jaitley told the press that the red line had been crossed in the first month itself. The red line was Rs 91,000 crore. He said the government was comfortable going forward, as it expected revenues to keep climbing with the increase in number of GST filers. It was around that time when Jaitley was heard lauding GST compliance, and talking of bigger reforms such as lowering GST slabs from the present four to just one or two. He was also heard talking of bringing in more reforms on direct taxes, and eventually giving relief to the salaried class once the government systematically shored up revenues.

Six months down the line, the GST revenues have disappointed. There has been a continuous fall month by month and the collections have been down to the Rs 80,000-mark in November, the data for which is available as of now. Worst, officials have confided that the December GST collections are going to be lower than November. The "comfort" about which Jaitley appeared sure about, appears to be vanishing. And, after the last week's GST Council meeting, the narrative has changed from trust on traders with regard to filing returns, to that of cracking the whip on GST evaders. Emerging out of the meeting on Thursday last, Jaitley said, "So far, we were relying on the unilateral declaration of traders, but we realise it is necessary to build in anti-evasion measures."

He was visibly pained to reveal that while the number of traders registered under the compliance scheme of paying GST had crossed 17 lakh, the revenue generated through that window was only Rs 307 crore in the July-September period.

Now, the GST Council is thinking of bringing back some of the relaxed norms such as reverse charge mechanism and invoice matching ahead of the deadline to identify evasion and plug leakages. It has already set the deadline of February 1 for making eWay bill compulsory for movement of goods valued more than Rs 50,000 within and outside a state.

The eWay bill is an online registration of goods to be transported, the details of which are uploaded by the supplier and transporter. The tax authorities in turn match the eWay bill with the actual consignment to check for tax evasion. While many believe that frequent lowering of GST rates on various goods and services is responsible for constant lowered collection of GST levies, the government suspects payment for many transactions are being done in cash to avoid GST. They also suspect under-invoicing of goods to be the major cause of depletion in revenues.

A third factor making a dent into GST revenues is believed to be the multiple filing of returns under the regime. To address it, the Council has taken help from Infosys Chairman Nandan Nilekani. He is expected to remodel the return-filing process and eventually bring it down to a one-stage filing in place of the current three stages. The move will also improve timely revenue generation so that month-on-month figures too look healthy. But till now, the cumulative impact of all that is the Centre staring at indirect tax receipts falling short of the Budget target. At the same time, the states are demanding more compensation for their revenue losses. To make some adjustments, the GST Council has authorised allocation of the integrated GST credits of Rs 35,000 crore between the Centre and the states, albeit on a provisional basis. The GST Council is of firm faith that the anti-evasion measures will boost GST revenues to the tune of 25%. Robust revenues are needed for the government to take up bolder reforms under the GST regime. Also, systematic flow of revenues from the indirect taxes and non-tax revenues are required to bring in reforms on the direct taxes side.

The Union Budget is round the corner. Both Prime Minister Narendra Modi and Jaitley have hinted at an overhaul of age-old direct tax laws which moves towards lowering the tax burden on payers. No one knows what is in the finance minister's briefcase which he carries to Parliament on Budget day. Falling revenues may hold him back from giving a big income tax rebate, but 2019 Parliamentary polls looming large can fork that out too.