With monthly collections a seventh lower than target, need to deploy strong analytics and self-policing measures.
Though economic affairs secretary Subhash Garg is quite confident that there will be no major slippage in this year’s revenue targets—he says that a minor shortfall in GST will be made up by higher direct tax collections that are already ahead of the target—and, hence, there will be no need to trim expenditure budgets, the latest set of data belie expectations. With GDP likely to come at around 7% or even lower, this will also reduce the fiscal deficit since the targetted number was based on a higher GDP growth. More important, while the government was targeting a GST collection of Rs 13.5 lakh crore for the year, or Rs 1.1 lakh crore each month, it has been averaging just around Rs 97,000 crore in the first eight months of the year. While this is the overall GST and includes both state GST, IGST and the compensation cess, central GST collections were projected at a little over Rs 50,000 crore a month in the budget as compared to the actual of around Rs 37,500 crore per month in the April to October period this year. To end the year with just a marginal shortfall, the asking run-rate has shot up quite considerably, to Rs 143,500 crore per month in the next four months, and there is little evidence so far that compliance levels have gone up sufficiently enough for collections to rise significantly.
In which case, it is time for the GST Council to start working on fixing the loopholes in the GST system, to make it more self-policing and also to put together a stronger analytics system to encourage compliance. At present, for instance, around 20 lakh—or 20% of those registered—entities have never filed a single return. A strong analytics division will match this 20 lakh number against, say, the database of shell companies that have been struck off the MCA database to see if these are even functioning entities. The GST authorities have, so far, detected `4,400 crore worth of fake GST billing—the money is paid by customers but this is not deposited with the government—via various shell companies, but there is no way of knowing how much more fake invoices there are. Another 10 lakh or so firms are what is called ‘stop-filers’, that is, they simply stopped filing returns; once again, there is a need to see how they resume filing. While the traditional belief is that the largest revenues come from the bigger entities—the 80:20 rule—this may not necessarily be true. A Business Standard analysis points out that listed firms—typically, the largest firms—account for just a third of corporate tax; in other words, were the GST network working at full potential, smaller firms may end up paying a much larger share of GST than they do today.
Thanks to a combination of a complex GST, software glitches and widespread tax evasion, the government never managed to implement invoice-matching that lay at the heart of GST. Instead, firms were allowed to file very basic information, and the hope was that, over time, compliance would rise on its own. While this did not happen, Infosys chairman Nandan Nilekani suggested making invoice-matching the responsibility of the enterprise itself and not GSTN, this was modified by the panel headed by Bihar finance minister Sushil Modi. The proposed solution has, however, not been implemented so far, and the belief is the government is not keen on pushing this in a hurry either so close to the general election. The government not being keen to enforce stronger compliance in the run-up to the elections—since this may alienate smaller businesses and traders—is understandable, but the alternative to this is much weaker GST collections.