Mohan Lavi

GST collection worries

Mohan Lavi | Updated on December 10, 2018

The shortfall in mop-up may hit the fisc

GST collections continue their monthly gyrations. Hopes were raised when October collections touched ₹1 trillion. However, November disappointed by fetching ₹976 billion. With no major changes expected in the regulations and taxpayers getting used to the system, it is clear that collections for the financial year will fall significantly short of targeted revenues.

A small dent on the fiscal deficit is inevitable. In the build-up to the elections, the government is not expected to do anything radical in GST laws that would offend the taxpayer.

Compensation to States

It is not that the government is unaware of the pressures on the fiscal deficit given the erratic GST revenues and a general stickiness in the economy. The reason the government is eyeing some of RBI’s excess reserves could be to contain the fiscal deficit.

Another hint of the government’s concern over the impact of GST revenues came when it amended the GST (Compensation to States) Act, 2017. The Act allows the Centre to levy a GST Compensation cess on the supply of certain goods and services. The receipts from the cess are deposited to a GST Compensation Fund which is used to compensate States for any loss in revenue following the implementation of GST. Under the Act, any unutilised amount in the Compensation Fund in the year 2022 (five years from the launch of GST) will be distributed equally between all the States on the one hand and the Centre on the other. In August 2018, a Bill inserted a provision in the Act specifying that any unutilised amount as recommended by the GST Council in the Compensation Fund at any time till 2022 will be distributed in the manner specified originally.

By replacing the word year 2022 with anytime, the Centre and the States can dig into the Compensation cess fund whenever they want. The Act specifies that compensation payable to States has to be released at the end of every two months and any shortfall in compensation should not exceed the total amount transferred to the Centre and States.

In quite a few States, GST officers have commenced visiting taxpayers and asking questions on their returns. A tax that was supposedly completely online, seems to be reverting to the Service tax era where filing of returns and payment of tax was online but enquiries and assessments will necessitate an offline meeting between the taxpayer and the department.

Crystal-gazing into 2019, how GST laws pan out depends on the outcome of the elections. If the present government continues, one could expect tightening of the laws and added emphasis on maximising collections at all costs. If a new political dispensation comes to power, it will attempt to tinker with the laws just to prove that it is doing something different. Irrespective of who comes to power, the taxpayer can expect another year of frequent changes.

The minutes of the 27th GST Council meeting tells us that States like Uttarakhand, Himachal Pradesh, Punjab and Jammu and Kashmir had a revenue shortfall in excess of 30 per cent after transitioning to GST.

Surprisingly, States such as Gujarat and Karnataka reported revenue shortage in excess of 20 per cent. Once the compensation formula to States ends in 2022, it is possible that State governments will be empowered to add some percentage points to existing GST rates on specific products being supplied from that State.

From 2023, it is quite possible that the concept “one nation, one tax” could become “One Nation, One Tax, Each State, Special Tax”.

The writer is a chartered accountant

Published on December 10, 2018

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