pri Random Thoughts on Economy and GST Random Thoughts on Economy and GST

It now appears that Indian Government did paved the way for economic turn amid Covid which was made possible by a mix of fiscal reforms and infrastructural push leading to higher consumption and revival of all sectors of economy. How much, how less – may be a perception issue but it did worked. Governance and political will also adds to this desired change.

India’s macro economics is fundamentally strong as reflected by inward flow of FDIs which is higher than many other emerging economies. It has been assured by the Finance Minister that public expenditure will continue and at a faster pace. Infrastructure funding will also be hiked via National Infrastructural Pipeline (NIP). Another indication of revival comes from advance tax collection for December, 2020 (III Installment) from corporates recording a growth of 49 percent on YoY basis. After CRISIL now ICRA has also predicted that India GDP is likely to contract by -7.8% in financial year 2020-21 (as against-11% earlier). A good rabi season and likelihood of vaccine brightens the prospects for demand.

Another Covid impact of concern is additional spending, falling tax revenues which has made the budget gap wider to 8% of GDP in financial year 2020-21 which is more than double the target of 3.5%. However, being an abnormal year, India may have to bear this and also offer some more fiscal packages to rescue businesses, create jobs and help severely hit sectors of economy. This is necessary to bring back the economy on track and is being practiced globally too.

So far as India is concerned, both RBI and IMF have endorsed the happening of economic recovery in India. India’s FM also feels that positive recovery may happen in next fiscal, which also appears to be so, given the present trend of turnaround.

The 2020 has been a recessionary year unlike earlier ones, perhaps the longer one but not due to economic reasons. The sources of recession or slow down is neither financial nor economic one but the economy got adversely affected by Covid-19 pandemic, locally as well as globally. It destroyed social and productive capital badly, also resulting in human crises. The capital markets too reacted globally tanking with rise and spread of Covid and going up on hopes of vaccine.

Covid times have been difficult times on all fronts – personal, professional, social, economical and even emotional. The economy is in recession and so is personal spending which has confined to bare necessities. It should enhance savings but incomes too have been impacted. India needs both- hike in social spending as well as personal consumption. Then only, economy will continue to move on. Today every part of economy requires a lift –be it labour, jobs, incomes, savings, consumption / demand, capital, manufacturing / production or any services. All of us as a consumer or producer or capital provider have to be in the system and contribute. On its part, Government needs to spend and invest besides removing the bottlenecks, adversely affecting growth and also provide fiscal reforms.

Private consumption in all spheres of economy will play a major role in Q3 GDP numbers. With festive season ending with Christmas / New Year which may not be a major event this year, private consumption, house hold retail spends and cash out go in the system may help.

Recently, Law Committee of GST Council has suggested a strategy for curbing fake invoice menace which could involve addressing fake registrations and weeding out fake dealers. Physical verification will also be undertaken. Fake invoices are one of the main sources of GST evasion which hurt the exchequer badly. About 1230 cases have been detected recently involving over Rs. 11500 crore of GST. Over 175 people also have been arrested throughout the country. It is fact that unless this is taken care of, we can not expect growth in GST collections.

GST authorities have recently cancelled over 1.60 lakh GST registrations due to non-filing of returns for more than six months. This drive has been undertaken to curb fraudulent ITC credits and fake invoices. Many arrests have also been made including that of chartered accountants.

Also, GST assessees now will be required to file only four quarterly returns GSTR-3B for payment w.e.f. 01.01.2021 instead of 12 presently, under the QRMP Scheme (quarterly return, monthly payment). This will be for taxpayers with upto Rs. 5 crore aggregate annual turnover.

Supreme Court has recently upheld levy of GST on winning from lotteries. The question of whether the lottery is an “actionable claim” or not has been answered by the Supreme Court in the affirmative, i.e., lottery is an ‘actionable claim’. On valuation, SC held that levying GST only on three actionable claims, viz., lottery, betting and gambling and keeping all other forms of actionable claims outside the ambit of the levy is discriminative has been negated by the SC on the ground that the policy decision of the Government in taxing certain actionable claims cannot be faulted. These actionable claims are res extra commercium  and hence no discrimination can be alleged.

CBIC has issued Notification No. 91/2020-CT dated 14.12.2020 extending the date upto 31st March, 2020 for completing the compliances under section 171 of the CGST Act, 2017 (i.e. Anti-profiteering). Further Circular No. 144 dated 15.12.2020 provides for waiver of UIN on the invoices for the months of April, 2020 to March, 2021 subject to condition that copies of invoices are attested by authorized representative of UIN entity and the same are submitted to the jurisdictional offices.

CBIC has amended CGST Rules vide Notification 94/2020-CT dated 22.12.2020 providing for cancellation of GSTIN, increase in time limit for GST registration, restriction on claim of ITC of 5% in place of 10%, mandatory payment of 1% tax from cash ledger, no refund under section 54 where GSTIN is suspended, one day validity to cover distance up to 200 Kms etc.

GSTN has also enabled auto populated GSTR-3B returns form for ease of taxpayers. It has also issued operational advisory for the same. GSTN also added a new facility for ‘communication between taxpayers’ to provide communication platform for taxpayers whereby a recipient or buyer can ask his supplier to upload any particular invoice that has not been uploaded but is required by the recipient to avail input tax credit.

With economy now on the path of recovery, government may take all possible steps to support industry. If this happens, GST collection may also improve further. With the improved trends in agricultural production, manufacturing sector, consumption, GST collections etc, it is most likely that economy will recover from this year itself but India will have to ensure that such recovery is on a sustainable path. The Union Budget 2021-22 is just more than a month from now and offers an great opportunity for comprehensive and objective steps towards this end.

Today what is needed is a strong and continuous dose of fiscal stimulus across the board and to specific sectors, keeping in mind, both, short and long term goals of economy. The Union Budget should try to ensure balanced economic growth of all sectors of economy and society, besides, squeezing the inequalities. In a conference recently, FM stated that she is looking at budget like never before wherein she is likely to consider measures for Covid effect. There will be more emphasis on sectors which need more hand holding and budget outlay. 2021 is expected to have many more structural changes in GST procedures and implementation in areas like curbing tax evasion, invoices, e-way bills, returns and appellate matters.

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