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The increasing pressure on GST collections and its fallout
The increasing pressure on GST collections and its fallout
Aug 7, 2018

Monthly revenue collections from the goods and services tax (GST) are improving, but adjusting for refunds, the mop-up is not very comforting. And the recent concessions are likely to exert more pressure on tax collections, pushing the fiscal deficit higher. Last week, GST Council cleared a proposal to incentivize digital transactions on a pilot basis via Rupay cards, BHIM app and the UPI system. Customers making payments through these platforms would get cashback of 20% of the total GST amount, subject to a maximum limit of Rs 100.

While the intention is to promote a cashless economy, the timing may be wrong, especially because GST collections are still short of the required monthly run-rate of Rs 1 trillion.

Going by the estimate of the group of ministers under Bihar deputy chief minister Sushil Modi, the revenue loss on account of this move would be Rs1,000 crore annually.

Although compliance has improved after the e-way bill implementation in May, contrary to expectations, tax collections haven’t seen a drastic increase.

Tax collections for June slightly increased to Rs 96,483 crore from Rs 95,610 crore a month earlier. However, collections for July are anticipated to get adversely impacted due to rate rationalization in the 28% tax slab. Last month, rates on 15 products such as vacuum cleaners, washing machines, paints and varnishes were reduced from 28% to 18% effective 27 July.

Rating agency Moody’s Investors Service has estimated the revenue loss from these tax cuts at around 0.04%-0.08% of India’s gross domestic product (GDP) annually.

The growing pressure on GST collections in a pre-election year would have serious implications on the government’s finances. According to Kotak Institutional Equities, the current run-rate in GST collections strongly indicates a revenue shortfall in fiscal year 2019 (FY19).

“Even if we build in an optimistic 8-10% quarter-on-quarter growth in the overall run-rate, there is likely to be a shortfall of around Rs300 billion (translates to around 15 basis points slippage in GFD/GDP),” it said in a report dated 1 August. A basis point is one-hundredth of a percentage point.

Meanwhile, in the June quarter, India’s fiscal deficit stood at 69% of the budget estimate for the full year, although lower than the 81% achieved in the same quarter last year. However, recall that GST went into operation only from July last year.

The government aims to trim the deficit to 3.3% of GDP in FY19, which would be a tall order unless GST collections revive sharply.

Source :  Livemint

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