GST on a firmer footing

With the month of March seeing Goods and Services Tax (GST) rake in its highest mop-up since its inception, the new tax regime has ended financial year 2018-19 on a high note. Gross GST collections of ₹1.06-lakh crore in March have helped the government close this fiscal year with ₹11.77-lakh crore in the GST kitty, against revised estimates of ₹11.47-lakh crore it set out in the Interim Budget, defying apprehensions of a significant shortfall. But despite this last-minute rise in collections, the Centre’s share of GST for the year at ₹4.3-lakh crore hasn’t quite measured up to its revised estimate of ₹5.03-lakh crore. With direct tax collections said to be falling short by a substantial ₹60,000 crore for the year, the Centre’s ability to meet its fiscal deficit target of 3.4 per cent depends on whether it managed to scrounge up enough non-tax revenues to fill the gap.

It is intriguing that GST collections should pick up in the last three months of FY19 to manage a 13-15 per cent year-on-year growth, when consumption indicators in the economy have been losing steam. The last three months have seen India’s high-frequency economic indicators such as automobile sales, IIP and core sector output register sharp deceleration after charting a revival in the first nine months. One possible explanation for this is that better growth in the services sector has buoyed GST collections, even as manufacturing has floundered. But it is more likely that the GST Council’s drastic pruning of items in the highest tariff band of 28 per cent and its rationalisation of rates to correct sector-specific anomalies in recent meetings, have paid off in the form of higher collections. Harnessing the centralised data generated by the GST Network, the revenue department has also redoubled its efforts to curb evasion in recent months. It has tracked down invoice mismatches, tightened e-way bill rules and has unleashed a rash of raids and arrests.

This seems to be paying off in the form of improving compliance, with the number of GSTR 3B return-filers inching up to 75.9 lakh in March, compared to just 72.4 lakh in December 2018. In an interview to BusinessLine last week, the CEO of GST Network pointed out that compliance rates under GST were 15 per cent better than those under the erstwhile VAT and service tax regimes. Overall, it is good to see the much-reviled GST stabilise in the second year of its operations, with businesses getting over their initial reservations with this watershed tax reform. Buoyant collections in recent months also hold out a strong message to policymakers that low tariffs and ease of compliance must accompany anti-evasion measures to meet collection targets.

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