GST has crossed the 'red line' and managed to mobilise Rs 92,283 crore
Finance Minister Arun Jaitley and the Goods and Services Tax Council deserve a pat on the back for leading a smooth transition to the new single tax regime that’s undoubtedly business-friendly, positive for consumers and genuine enterprises. First set of GST mop up figures for July this year bear testimony to the fact that businesses and consumers were coming to terms with the new levy that has replaced about a dozen fragmented and assorted states’ and central taxes.
Jaitley crossed the ‘red lines’ for having managed to mobilise Rs 92, 283 crore that would be apportioned between states and centre as per a pre-agreed formula. Biggest positive was that revenue mobilisation has not suffered given that the GST Council targeted Rs 91,000 crore in first month post-rollout.
Second pointer was that the Rubicon was crossed though only 38.38 lakh assesses out of 59.57 lakh assesses have filed their returns as on August 28, the deadline. If other registered assesses were to complete filing of GST returns, the revenue mop up would cross Rs 100,000 crore mark.
For both centre and states, early indications are that it is a win-win situation given that budget projections and states’ revenue estimates were achieved seamlessly. The biggest fear was whether the states would achieve 14 per cent growth in each of financial years, 2016-17 and 2017-18 over actual revenues reported in 2015-16. This has been done and hence the government’s burden of compensating states may actually not be there.
But, there’s a little catch. For instance, the exporters will still seek duty remissions. In the transition, duty credits and VAT compensation for states has to be factored in. If Jaitley’s bullishness is anything to go by, GST Council would smoothly meet all states demands even without dipping into the Cess funds of Rs 7,198 crore.
Though its too early to plot GST mop up trends or revenue realisation impact on macro-financials, resisting the temptation of making assumptions is the way forward. However, states will have to ponder over strategies to keep buoyancy in taxes that were not subsumed under GST. These levies constitute about 45 per cent of states’ tax kitty and include levies on income, property and capital market transactions, petroleum products, state excise and electricity duty. Since entertainment tax continues to be levied by municipal corporations and city bodies, states will have to keep an eagle eye on these heads.
Most interestingly, the GST Council will have to look out for growth in goods and services tax revenue in different states given the mixed picture emerging as of now. For instance, the GST growth based on pre-rollout performance, states like Punjab that report just 8.47 per cent growth should be subject to review. Though states like Telangana that reported 39.7 per cent growth in GST revenues would make up for the laggards, there’s no reason why low performance states cannot be pulled up. As per back of the envelope calculations, eight states, including Andhra Pradesh, Chattisgarh, Gujarat, Tamil Nadu, Himachal Pradesh, Punjab, Madhya Pradesh and Odisha may have to be compensated though the buoyancy elsewhere will make up.
As was the case with the VAT rollout during April 2005 – January 2008, GST will no doubt result in revenue mop up efficiencies thereby resulting in additional 5 per cent revenues in the entire financial year. From revenue collection point of view, GST roll out has definitely been a firm first step towards a simpler and unified taxation regime turning India into a single mini European Union size market. But then, not losing steam, cajoling the businesses to file returns every month, keeping consumers satisfied and bringing life back into the economy may be too many parameters to achieve. The first step has been taken. Let’s remain steadfast.