[Editorial Analysis] Too faint for comfort? on GST collection

Mains Paper 3: Economy

Prelims level: GST

Mains level: Government Budgeting

Context

• 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.

Way forward

• 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.

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