Even if there is no further rate rationalisation or relaxation in compliance requirements during FY20, the budgeted growth target of almost 20% for GST collections can be described as ambitious.
By Bela Sheth Mao
Based on the Interim Budget, the aggregate GST collection (Centre and states) for FY20 would be Rs 13.71 lakh crore, which is almost a 20% growth over revised estimates for FY19. The budgeted aggregate GST collections for FY19 was `13.47 lakh crore which has been revised to Rs 11.47 lakh crore (based on figures from the receipt budget of the Interim Budget). The average monthly collection in the first year of GST was Rs 90,000 crore and for the second year, FY19 till January, it is Rs 97,000 crore, which is below the estimated monthly average requirement of `1 lakh crore. The monthly GST target for FY20, translates to Rs 1.25 lakh crore. The Interim Budget has set a very steep target for GST.
The Interim Budget did not provide a clear roadmap on how this boost in GST collections would happen. The assumption could be that, with the introduction of other fiscal measures, economic activity will pick up and will lead to higher GST collections. GST collections show an upward swing of 8% in FY19, a year in which there were two rounds of rate rationalisation and the recent announcements of raising exemption and composition scheme limits. The impact of the latter on GST collection will only be known from February 2019 onwards. The government has consistently maintained they would look at further rate rationalisations and hence this is also a real possibility. A group of ministers is currently reviewing the taxation of the real estate sector. Even if there is no further rate rationalisation or relaxation in compliance requirements during FY20, the growth target of almost 20% can be described as ambitious.
Anti–evasion measures like e–way bills and tax deducted at source/tax collected at source have been introduced in FY19. These measures have, to some extent, contributed to the upswing in GST collections. E-ways bills are still unable to curb evasion and technology intervention, such as the mandatory RFID tag introduced by UP, may assist in better tracking of movement of goods.
There are two other anti-evasion measures which have not been implemented and can assist in improving GST collections. The first is the reverse charge mechanism (RCM) for purchases from unregistered dealers and the other, the back bone of the GST law, is the input tax credit (ITC) matching mechanism which is, for now, not functional on GSTN. The RCM is significant, considering the doubling of the exemption limits in most states. The lack of a functional ITC matching mechanism has, as per media reports, led to a number of cases of fraudulent ITC credit claims, some of which have been detected over the past couple of months. The new compliance process, which is to be implemented from April 2019, may address the ITC matching requirement. All these anti-evasion measures, along with a pickup in economic activity, may help in realising the goal of 20% growth in GST collections.
An improvement in GST collections is required not only to meet the budget estimates but also to enable a more uniform GST implementation across all goods and services. Though GST has brought in the concept of ‘one nation, one tax’, for most goods and services, there is a large portion of the economy that is still outside of the purview of GST. Crude oil, natural gas, petrol, diesel and aviation turbine fuel are still outside the ambit of GST. This exclusion continues to create distortions in the tax value chain as taxes on these products are not creditable under the GST law. The key reason for keeping the 5 petro products outside of GST are revenue concerns and hence an upswing in GST collections will enable these 5 petro products to be included within the GST law.
Another concern, and one which we have seen playing out in the past, is that very high revenue estimates can give rise to an aggressive tax regime in order to meet the collection targets. Such actions may lead to temporary gains but, in the long-term, do have an adverse impact on compliance and collections. Another major fallout of lower collections is the delay in processing and payment of refunds which is a key concern today and can get aggravated in the future. Hence, the need for a roadmap and timely interventions, to achieve the budget estimate, is even more imperative and urgent.
The author is partner, Deloitte India