GST Faces An Existential Threat — Prof K Nageshwar

The Goods and Services Tax (GST) faces an existential threat as the centre reneges its promise of ensuring compensation for states if the tax collections fall short of the assured extent. The GST act commits a guaranteed revenue of 14 percent annual increase with 2015-16 as the base year. The union government is abdicating its responsibility, citing it as an ‘act of god.’ But, democracy perceives an act of parliament as more sacred than a divine act.

The centre itself acknowledges that GST shortfalls are not entirely due to the COVID-19 induced economic crisis. The GST collections started to decline much before the pandemic rocked the world. The macroeconomic policy regime, which is an act of central government, especially the hasty demonetisation, botched up GST’s implementation, has dampened the growth, thereby tax accruals too.

The annual statistical report recently released by the Goods and Services Tax Network (GSTN) provides a view of the performance of the regime since its inception in July 2017 till the end of the financial year 2019-20. This period hardly covers the lockdown induced economic crisis.

Noted economists CP Chandrasekhar and Jayati Ghosh, based on the official estimates, provide an analysis of GST experience so far in the Business Line. There are two positive signs. First, that the number of taxpayers registered under GST stood at 1.08 crore as early as April 2018, and rose to 1.23 crore by June 2019, where it has more or less stayed since then. Secondly, there has been a consistent and steep rise in the cumulative number of returns filed, which stood at over 47 crores in June 2020.

The protagonists of GST argued that it is a growth and development accelerator and will lead to higher tax collections. But, the experience of GST was far from expectations.

— The total monthly collections from State (SGST), Central (CGST), and integrated (IGST) goods and services taxes and the compensation cess first crossed Rs 1 lakh crore in April 2018. But, there have been only nine months out of the 33 months till March 2020 in which that mark has been exceeded in nominal terms. Also, there have been only four months in which the figure has topped Rs 1.05 lakh crore.

— Average monthly GST collections rose sharply from Rs 82,294 crore in the nine months of 2017-18, starting July to Rs 98,114 crore in 2018-19, rose only marginally to Rs 1,01,843 crore in 2019-20. Thus, the average monthly collections, which were 19.2 percent higher in 2018-19 than the previous year, grew in nominal value by just 3.8 percent in 2019-20.

— GST collections rose from 5.8 percent of the GDP in July 2017-18 to 6.2 percent in 2018-19 and then fell to 6 percent in 2019-20.
Three years after this new indirect tax reform was introduced with the much-hyped slogan of ‘one nation, one Tax,’ patchy structure, multiple rates, mid-course changes, and complex compliance requirements, technological glitches, etc., have all accentuated the mess. Now the breach of trust with the centre’s refusal to meet the promised compensation cess pushed the states to the wall.

By — Prof K Nageshwar

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