Get real on GST

Rate reforms are needed to help shore up collections

The Union government has exuded confidence in meeting the target for collections of the goods and services tax (GST) for the current financial year. However, the numbers so far tell a different story. The November collections, which capture taxes paid on transactions during the previous month, were estimated at 976 billion, still short of the monthly target of at least 1 trillion. In the fiscal year so far, only in two months have the GST collections crossed the 1-trillion mark — in April and October. GST collections in the first eight months of 2018-19 now stand at 7.76 trillion, just about 58 per cent of the annual target. The trend so far also implies that if the annual target has to be met, the monthly collection in the remaining period of the year should be over 1.43 trillion, a tough ask by any yardstick. In the current situation, it is difficult to see how the GST collections in the remaining months would see a 47 per cent increase over the average monthly rate seen in the April-November period.

There are many reasons why the collections have failed to meet the targets set so far in the year. Expectations that the glitches in the implementation of the GST regime would be overcome as the year progresses have proved to be a little exaggerated. While the system has stabilised to a great extent, the compliance level has not seen a significant improvement and the experience of many taxpayers is still not satisfactory. The number of registered taxpayers is still high at 11 million, but the earlier pace of increase in the number of returns filed by taxpayers has not been maintained and such returns languished at 6.7 million by the end of September 2018. If the compliance rate does not improve further — and it could be because of the lack of ease of filing returns — the tax collections in the coming months would certainly be adversely affected.

More importantly, the GST Council, the body that fixes the tax rates, decided at two of its recent meetings — in November 2017 and July 2018 — to cut the duties on a host of items from the highest slab of 28 per cent to 18 per cent. Those rate cuts also contributed to lower collections in GST revenues in the subsequent months. Hopefully, revenues would pick up after lower duties result in more sales as producers of goods and services benefitting from the lower rates are able to reduce prices. The logic of reducing the rates of commodities and services in the 28 per cent slab, therefore, cannot be questioned. What, however, defies logic is the fact that the GST Council has so far made no attempt at reducing the number of tax slabs. A more sensible strategy would have been to combine the moves to reduce the number of goods and services from 28 per cent to 18 per cent with those to increase the rates of a host of other items placed at lower slabs. This would have helped the Council to gradually reduce the number of tax slabs to two or three categories. Such a review should be undertaken at the next meeting of the Council. This will not only help push the GST reforms agenda but also reduce the collections shortfall.