Goods and Services Tax (GST) collection rose 3.7% year-on-year to Rs 8.05 lakh crore in the first eight months of the current financial year, until November 30, despite a slowdown in consumption and sluggish economic growth, according to a presentation made in the GST Council last week.
Growth in revenue collection would have been stronger but for a 6.8% slump in the import component of the integrated GST (IGST) collection during the period, according to the presentation, made during the 38th meeting of the council on December 18.
Total IGST (imports), including compensation cess, in April-November 2019, was Rs 1.90 lakh crore compared to Rs 2.04 lakh crore in the same period last year. Imports of goods and services are treated as inter-state supplies and attract IGST.
The government is making efforts to collect about Rs 12.6 lakh crore of GST in 2019-20, which is about Rs 90,000 crore more than in the previous financial year, two officials with direct knowledge of the matter said, requesting anonymity.
To be sure, this is also the GST collection as estimated by the Union Budget. This includes the total GST and the state GST. Total GST — Central GST, Integrated GST and GST compensation cess combined — was estimated at Rs 6.63 lakh crore for the year. According to the government, collections were trailing marginally behind target last month.
“The Budget Estimates for Central GST for 2019-20 has been fixed at Rs 6,63,343 crore. The actual net GST collection for the Centre till October 2019 in the current fiscal year is Rs 3,26,490 crore,” junior minister of finance Anurag Singh Thakur said in a written reply to the Lok Sabha in November.
The revenue department last week gave a collection target of Rs 4.55 lakh crore to the GST field team in the remaining four months of the current financial year without resorting to any overreach. Officials said this may well be achievable because, in their assessment, the economy has bottomed out and consumption will increase from now on.
India’s gross domestic product (GDP) grew 4.5% in the July-September quarter (Q2 2019-20), the slowest pace since March 2013.
Experts said there was no flaw in the basic architecture of the GST, which is evident from the revenue collection figures. In an interview with NDTV on Wednesday, former chief economic adviser Arvind Subramanian said, “I think actually the GST revenue performance has been quite good. Revenues have come down not because the GST is doing badly, it’s because the economy is very weak.”
Pratik Jain, partner and leader of the indirect tax practice at PwC India, and MS Mani, partner at Deloitte India, also expressed a similar view. “I agree that GST collections have been decent despite the rate cuts and economic slowdown,” Jain said.
Still, GST collections could remain under pressure until there is an improvement in the underlying economic parameters, said Mani.
The two officials cited above said the growth in GST revenue, so far, is, not sufficient, which is the reason for a demand for increased compensation by states. The Centre has pledged to ensure 14% revenue growth every year for states for five years, failing which it is committed to meeting the shortfall from the compensation cess fund. The officials said that while this compensation has been paid until September, the Centre could face a shortfall of around Rs 63,000 crore in meeting compensation demands for the rest of the year.
“The only option left is to go for rate rationalisation if the stakeholders decide to continue with compensation at the rate of 14%. The option of raising compensation cess is limited,” one of the two officials said.
Cess is levied on luxury items and sin goods. The cess is levied to compensate states for their revenue losses due to transition from a decentralised value-added tax (VAT) regime to a unified indirect tax system.
That rationalisation could take the form of fewer tax slabs but marginally higher rates.
West Bengal finance minister Amit Mitra cautioned against a knee-jerk reaction such as raising tax rates at this time, when economic growth is decelerating, because this could hamper consumption. He is also against withdrawing GST exemptions.
“Any tinkering with the list [of exempted items] would undo the hard work which has gone into the identification of the exempted goods and services and will adversely impact the common man,” he said in a letter written to the Council’s chairperson on December 16.
Experts also cautioned about raising GST rates. “GST collection is down primarily because of economic slowdown and perhaps the tax base has not increased to the extent possible because of tax evasion at certain pockets,” said Jain.
“Rather than increasing the rates, at this point government perhaps needs to keep them stable and continue to simplify the compliances with a sharp focus on catching tax evaders.”