Sliding GST collections may put pressure on government

Sliding GST collections may put pressure on government

ST rate cut and lenient implementation of the tax reform has caused GST collection in December to slip to Rs 80,808 crore, down 14% from August and 3% from NovemberThings don’t augur well for the exchequer, with recent GST rate cuts and a lenient implementation of the goods and services tax causing collections to slide further in December, posing a challenge to the government.

Total GST collection of the central and state governments, including taxes on inter-state supplies and the cess on certain items, added up to Rs80,808 crore in December.This is a 14% drop from the collections in August, the first month of tax collection and return filing under the new indirect tax system that kicked in on 1 July.

Compared with the receipts in November, December’s GST collection was marginally lower by 3%.Lower-than-expected GST collections, along with the extra spending that Parliament approved earlier this month involving a net cash outgo of Rs33,380 crore, are set to put pressure on the government in its efforts to limit this year’s fiscal deficit to 3.2% of gross domestic product (GST), a target set in February.

In the April-October period, the fiscal deficit scaled 96.1% of the Rs5.4 trillion targeted for the full year, according to data from the Controller General of Accounts.The government has so far managed to raise about three-fourths of the targeted Rs72,000 crore through disinvestment, according to information available from the finance ministry.

Net direct tax receipts, however, grew 14.4% to Rs4.8 trillion in the April-November period from a year ago. Faster economic growth in the latter half of the current fiscal year could give fresh impetus to revenue collection.Experts attributed the decline in GST revenue to several one-off transition issues, which should fade in the coming months.

For example, many of the steps taken by the federal indirect tax body, the GST Council, to address liquidity problems faced by businesses, including liberal tax refund rules, took effect in October. By February, when tax collections for the transactions in January will be available, most of the transition issues would have faded and revenue receipts will stabilize, explained Pratik Jain, leader, indirect tax, PwC India.

On 10 November, the GST Council chaired by finance minister Arun Jaitley slashed tax rates on a large number of daily-use items, including almost 180 items in the highest slab of 28%.The Council also changed rules to make compliance easier for businesses.

These reductions alone are expected to result in a revenue loss of about Rs20,000 crore a year, according to Council members who spoke on condition of anonymity.Policy makers believe that once compliance increases and tax receipts pick up, the revenue impact of the tax cuts will only remain an academic issue.

Deloitte India senior director R. Muralidharan attributed the reduction in GST collection to rate cuts that took effect from mid-November.“It would take some time for the volumes to go up and make good the loss due to rate reduction,” he said.

The Mint, New Delhi, 27th December 2017