Mains Paper 3: Economy
Prelims level: GST
Mains level: Government Budgeting
• Goods and services tax (GST) collections in the month of October crossed the ₹1 lakh crore mark, with total collections for the month standing at ₹1,00,710 crore.
• This momentum, coming in the midst of a marginal increase in the total number of filings compared to September, is expected to be sustained in the coming months, supported by the festive season that is under way.
• GST collections had crossed the comfort level of ₹1 lakh crore for the first time in April this year.
• The average GST revenue during 2017-18 was ₹89,885 crore.
• The reduction in tax rates under GST in July seems to have helped improve compliance among small businesses, leading to an increase in overall tax collection.
• It also helps to reduce the distortionary effect of indirect taxes. The increase in GST collections comes at a time when the Centre has been unable to control its spending in the run-up to the general election due by next summer.
• According to data released last week, the government’s fiscal deficit reached 95.3% of its budgeted estimate by the first half of the year.
Reasons behind this tax increases
• Direct tax collections too have increased over the past few years, reaching an all-time high of ₹10 lakh crore in 2017-18, helping to fund the deficit.
• The festive season too has failed to meet expectations as of now with many consumer-facing businesses reporting lacklustre sales.
• Car sales reported by major companies until now, for instance, are flat.
• Various other economic indicators also have failed to impress in recent months.
• Core sector growth dropped to a four-month low in September.
• These growth-related factors will weigh negatively on tax collection in the coming months.
• Apart from the general macroeconomic environment, there are specific implementation issues that plague the indirect tax system.
• The export sector, for example, has been affected by undue delays in GST refunds worth thousands of crores of rupees.
• The GST collection in October is also still significantly below the expectations of ₹1.10 lakh crore.
• The current spurt may be simply owing to the festival season.
• It may also be too soon to say that GST collections are on a sustainable uptrend simply based on the October collections.
• Collections during the first six months of the current fiscal year fell short of target by over ₹22,000 crore despite record collections in April.
• The government should continue the effort to make the GST more taxpayer-friendly, bringing down the cost and hassle of compliance, to achieve a sustained rise in collections.