Challenges in achieving targets – GST

What is the issue?

Rate reforms are needed to help shore up collections from the Goods and services tax(GST) and to achieve the budgeted target.

What is the performance of GST in this fiscal year?

• The 2018-19 budget had estimated annual GST collection at Rs 13.48 lakh crore, which means a monthly target of Rs 1.12 lakh crore.
• In the first eight months (April-November) of the current fiscal, the government has collected over Rs 7.76 lakh crore from GST.
• However, in the fiscal year (2018-19) so far, the GST collections crossed the 1-trillion mark only in April and October.  
• GST collections in the first eight months of 2018-19 now stand at just about 58% of the annual target.  
• The GST collection in November too were estimated at Rs 97,637 crore, which stands short of the monthly target.
• Thus if the annual target has to be met, the monthly collection in the remaining period of the year should be over 1.43 lakh crores.
• This means that the GST collections in the remaining months should see a 47% increase over the average monthly rate seen in the April-November period, which seems to be a difficult task.

What are the underlying reasons?

• There are many reasons why the collections have failed to meet the targets set so far in the year.
• Though the GST 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.
• This is shown by lowering number of returns, standing at 6.7 million, filed at the end of September 2018.
• This could possibly be attributed of the lack of ease in filing returns by the taxpayers.
• Thus, if the compliance rate does not improve further, the tax collections in the coming months would certainly be adversely affected.  
• Also, the GST Council, in its earlier meetings, reduced the duties on a host of items from the highest slab of 28% to 18%.
• These rate cuts have also contributed to lower collections in GST revenues in the subsequent months.   

What should be done?

• GST revenues would pick up, since reducing the duties result in more sales as producers of goods and services benefitting from the lower rates are able to reduce prices.
• However, 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% to 18% with those to increase the rates of a host of other items placed at lower slabs.
• This would help 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, which will not only help push the GST reforms agenda but also reduce the collections shortfall.

Source: Business Standard