Indirect tax base grew 50% since the GST roll-out, says Economic Survey

Bolstered by sharp growth in the tax base, goods and services tax (GST) revenue mop-up has been ‘surprisingly robust’ despite ‘teething difficulties’, said the Economic Survey 2017-18.

The indirect tax base grew 50 per cent since the GST roll-out, led by a large increase in registrations, especially by small enterprises. The demonetisation of high-value currency notes in November 2016 resulted in widening of taxpayers’ base, the Survey said. 

As of December 2017, there were 9.8 million unique GST registrants, slightly more than indirect tax registrants under the earlier system. Although not comparable, GST has increased the number of unique indirect taxpayers by more than 50 per cent, a substantial 3.4 million. “The two numbers are not comparable. Registrants in the old system were not unique, since many taxpayers were registered under several taxes,” the Survey said.

Maharashtra, Uttar Pradesh, Tamil Nadu and Gujarat have the largest number of GST registrants.

Annual GST collection for 2017-18, based on the five-month average till November, was Rs 10.5 trillion, which is 8.2 per cent higher than indirect tax collections last year of Centre and states combined, said the Survey, tabled in Parliament on Monday. 

The Survey highlighted that there was a potential of 12 per cent growth in GST revenue in the current fiscal year to Rs 10.9 trillion if a couple of additional factors were taken into account. One of these was equalising state GST with central GST. 

Central GST collections have been lower than state GST collections due to higher refunds at the central level on pre-GST stocks.

After two months of slide, GST collections picked up slightly in December to Rs 867 billion. Amid slowing revenue, the GST Council had in its previous meeting decided to provisionally divide Rs 350 billion collected as Integrated GST between the Centre and states.

The informal sector was the most affected by GST implementation. “The government will also need to stabilise GST implementation to remove uncertainty for exporters, facilitate easier compliance and increase the tax base,” the Survey said.

GST also affected supply chain functions, especially where small traders were suppliers to intermediaries for larger manufacturing companies, as they found it difficult to comply with the increased paperwork.

To address concerns, the Council has reduced the rates on more than 300 items since the roll-out in July. With Finance Minister Arun Jaitley hinting at converging the 12 per cent and 18 per cent tax slabs in the future, the Survey said 15-16 per cent was the single rate that would preserve revenue neutrality, based on average collections in the first few months. The implied weighted average collection rate (incidence) was about 15.6 per cent, it said.

Cooperative federalism technology

The GST model of cooperative federalism could be emulated to tackle a wide array of difficult structural problems involving states, the Survey said. Over the medium term, cooperative federalism could be used to create a common agricultural market, integrate fragmented and inefficient electricity markets, solve interstate water disputes, implement direct benefit transfers, make access to social benefits portable across states and combat air pollution.

“Cooperative federalism is, of course, not a substitute for states’ own efforts at furthering economic and social development. But it is a critical complement,” the Survey said.