Recently IMF has cautioned India on economic slowdown stating that India is in the midst of a significant economic slowdown calling for urgent steps to check the slowdown and continuing with fiscal consolidation. The policy reforms suggested are ongoing cleaning up of bank’s balance sheets, strengthening of bank’s governance, regulatory oversight of NBFCs, monetary easing, GST related reforms, further ease of doing business, IBC related reforms, expanding tax base and overall macro-economic management.
The Parliamentary Standing Committee on Finance has asked the Centre to address the issue of dwindling goods and services tax (GST) collections, which the Finance Ministry had explained as reason for delay in the compensation to the states. It has also asked the Government to prevent misuse of input tax credit (ITC) and take measures for increasing GST compliance.
Along with GST Council meeting on 18.12.2019, States also had a pre- budget discussion with Finance Minister. Some of the States (like Bihar, Kerala) have suggested for fiscal expansion and relaxing the deficit target to 4% of the GDP by boosting consumption so as to tide over the slowing economy. It seems that fiscal deficit will also rise due to weak revenue collections in current year.
The 38th meeting of the GST Council was held on 18.12.2019 wherein few important decisions were taken such as prescribing uniform tax rate of 28 percent for State owned and State authorized lotteries, waiver of penalty and late fee on GST return, GSTR-1 if filed by 10th January, 2020, setting up a complaint redressal system, restricting input tax credit in case of mis-matches from 20% to 10%, extension of due dates of filing Form 9 and 9C by one month to 31st January, 2020, exemption on upfront payment on long term leases with or more than 20% stake of Central or State Government and few others.
It can be said that the Council’s decision to further restrict ITC on mismatched transactions to 10% (in place of 20%) will adversely impact the otherwise tax complaint tax payers for no fault of theirs. It may also not add much to Government’s kitty but will only complicate the ITC and related tax administration. To the extent of ITC denied, there will be a pressure on working capital, albeit a small amount in overall tax revenue.
The 38th GST Council was also the first for voting being taken up for a decision. till now, all decisions had been taken by consensus and no voting was resorted to. On the issue of uniform GST rate on lotteries (both state run and state authorized), GST Council took decision of levying a uniform rate of 28% on all lotteries w.e.f. 1st March, 2020. Presently, state run lotteries attract 12% GST while others 28%. The resolution was favoured by 21 states.
In India where concept of ‘cooperative federalism’ has been crucial in GST implementation, the tradition has been broken after 30 months of GST and 37 Council meetings, something which was preserved so far. The FM could have acted more factually, some hand holding done and consensus arrived. On compensation too, she should have taken states into confidence to make good the ‘trust deficit’ and to ensure smooth way forward on GST. After all, for GST, all states are important and ought to be heard, respected, compensated and banked upon for revenue mobilization.
It is being stated that the Government and in particular the revenue is seriously concerned on falling GST revenues over a period, and rightly so. We, all stake holders would unanimously agree on this. Fixing targets and then pressurizing the officials to meet the target is not going to work. The root of the problem lies in the nearby field which nobody is looking at, eyes closed perhaps. We are witnessing a fall from 8% to 4.5% in GDP growth in past few quarters, roughly to half. In fact, one should be happy to see that tax revenue fall is not commensurate. It is a human habit to crib at what we don’t have rather than to be contended with what we have. GST is only an example. MOF should ideally be looking at repairing the economy and see that growth in all sectors of economy starts improving. Tax revenue is only a consequent result which has no choice but to go up. So, address the economy first and then expect tax revenues in result. That will also help the growth in all sectors and lead to good days for one and all.
In a related move, Government has raised GST collection target to Rs. 1.10 crore per month from December 2019 onwards to ensure revenue collection as per targets, of course without harassing the genuine taxpayers. GST officers shall ensure that GSTR-1 and 3B returns are filed for which penalties / fines have been waived in recent GSTC meeting. Fearing coercive action and waived fine, taxpayers may come forwarded and file returns by 10th January, 2019, as stipulated as a waiver condition.
Many quarters have started voicing for holistic review of GST law and rules including rates. In fact, the present GST cannot be termed as a perfect GST as it does not include all products and services, there are barriers in input tax credit and GST rates are every now and then distorted. It is high time that the GST Council look at reviewing GST in a comprehensive manner now.