Four years since its rollout, the Goods and Services Tax (GST) regime may have outgrown the teething procedural troubles, but falls way short in terms of living up to its billing as a simple, transparent and self-policing tax dispensation. This has ended up impeding some of the implicit assumptions on revenue buoyancy on account of a widening of the tax net that was seen as one of the main advantages of the new nationwide indirect tax regime.
An analysis of the revenue collections data for the past four years shows that gross montly GST collections have largely stabilised around the same level of Rs 1-lakh-crore mark, missing the widely held expectation of a progressive broadening of the tax base. This has ended up triggering an escalating slugfest between the Centre and states. Experts said the trends indicates the inability of the tax administration to expand the number of taxpayers within the ambit of the indirect tax, with many small businesses struggling to keep pace with the extent of formalisation and compliances, even as other still remain reluctant to join in under the GST regime. That the economy has been progressively slowing has further aggravated the compliance record.
With a series of rate cuts covering 400 items and 80 services over the last four years along with tweaked compliance rules, the GST was expected to further enhance the compliance from taxpayers and boost revenues. But the Centre’s share of GST collections, however, grew by just 3.5 percent in 2019-20 over previous fiscal, before dropping by 7.9 percent in 2020-21 amid the economic slowdown worsened by the Covid-19 pandemic. Gross GST collections, which include the share of states as well, grew only by 3.8 percent in 2019-20 over previous fiscal, before declining by 6.9 percent in 2020-21.
The government’s revenue situation has been impeded further on account of lower corporate tax collections over the last two financial years, which declined to Rs 4.57 lakh crore in 2020-21 from Rs 5.56 lakh crore in 2019-20 and Rs 6.63 lakh crore in 2018-19. Much of this shortfall is being progressively recouped through the lowest hanging fruit increasing higher duties on fuel. Excise duty collections soared to Rs 3.89 lakh crore in 2020-21 from Rs 2.39 lakh crore in 2019-20, primarily on account of higher levies on fuel.
“The GST regime was launched with an ambitious expectation that it will lead to an increase in the GDP by 1-2 percentage points. Also, it was expected that with the basic structure being present from pre-GST regime, the revenue collections would gain base0e parallel proceedings initiated by CGST and SGST authorities at the same time against taxpayers. Why?,” Bimal Jain, Chair, Indirect Tax Committee, PHDCCI and Managing Director, A2Z TaxCorp LLP, said.