Good and Services Tax (GST) which was rolled out on 1 July 2017 has by and large been hailed as a sensible alternative to the earlier regime of multiple taxes and tax on taxes aka cascading effect unleashed by the absence of meaningful input credit. But when it comes to the proof of tax collections, there is more to be desired.
A collection in excess of Rs 1 lakh crore per month was benchmarked as the ideal, more by way of rule of thumb in rough juxtaposition to pre-GST collections of taxes which GST subsumed. This target has been achieved only a few times in its brief history--Rs 1,03,459 crore in April 2018, Rs 1,00,710 crore in October 2018 and Rs 1,02,503 crore in January 2019. Hence the mood of despondency in some quarters.
But then GST is still a work in progress. Indeed it would remain for a few more years given its profound and near all-encompassing scope. Finance Minister Arun Jaitley has hit the nail on the head in his neat analysis of who was the villain of the piece — he said it was the services sector.
Services contribute 54 percent of the GDP, yet GST has been about manufacturing and trading substantially, bemoaned Jaitley.
And for the disappointing contribution of the services sector to GST, he diagnosed dog-eat-dog competition in the telecom and aviation sectors as the chief reason.
While these two sectors cannot be forced to give up suicidal pricing policies, he has tried to woo the small service providers with a compounding scheme not available to them earlier.
Accordingly, last month he announced a concessional rate of 6 percent GST on service providers whose annual turnover did not exceed Rs 50 lakh in the previous year. There are portents that should warm the cockles of the government and GST enthusiasts. These portents may not be discerned from the GST collection figures.
Indeed GST collections statistics belie the potential of GST i.e., what is in store for the nation from this historic makeover to the one-nation-one-tax eschewing the cascading effect. Economic survey report in the run up to the last year’s 2018-19 Budget gave a cause for cheer — 50 percent increase in indirect tax payers post GST.
There are lead and lag indicators referred to by economists. The healthy 18 percent spurt in income tax collections in 2017-18 is a lead indicator of what is in store on the GST front.
The Narendra Modi government’s back-to-back (that is out it panned out) demonetisation of high value 500 and 1000 rupee notes followed by GST roll-out admittedly mainstreamed the economy like never before with business-as-usual for cash-and-carry in a wink-wink permissive environment feeling the heat of the twin measures.
GST leaves distinct audit trail of predecessors and successors in a supply chain. Naturally, it provides grist to the mills of income tax authorities.
While the less than expected GST collections may be a statistical reality, it must be admitted that the statistics hide and belie the economic and tax potential just as poll arithmetic can often belie the poll chemistry.
Indeed, GST has set the income tax coffers ringing merrily, and this can be rationally ascribed to GST substantially. Though the success of GST would be judged by GST collections, it would not be irrational to take comfort from heightened income tax collections on the back of GST. And with GST being a work in progress, bringing in of petroleum products within the GST fold can be a game changer in the realm of taxation. Ditto for real estate.
(The writer is a senior columnist and tweets @smurlidharan)
Updated Date: Feb 23, 2019 09:55:00 IST