Revenue impact in 9months of GST
1. Growth in total revenues
Total GST collections (incl state GST) matter the most as Centre compensates states for not meeting revenue targets.
-- Total revenues for 9mo have been very buoyant, at Rs 8.2 lakh cr (growth of 11.9%). This implies a high tax buoyancy of 1.2, though GDP had not grown by quite as much during this period.
True GST collections are estimated after stripping out transitional elements. These elements can boost future revenues (overpaid CGST credit) or depress them (pending refunds to exporter et al). As per authors, underlying growth in revenues is greater than the actual 11.9% level.
Comment: GST revenues were/ are an ever-present worry for the Centre. It now appears GST has overcome disruptions to smooth administration of taxes (incl suspension of late penalties), slow down in the economy, and more importantly large cuts in GST in Oct-Nov 2017.
2. Compensation to States
Centre had indicated it would need to give substantial compensation to states, but this is not correct once unallotted IGST and compensation cess are taken into account. Authors give the final compensation at just 5000 - 10000 cr!!
-- Authors predict higher GST growth in the coming year, due to better compliance from e-way bills and invoice matching. These powerful tools were suspended because taxpayers had complained about the complexity of the regime. NB e-way bills are fully implemented, and working well:
https://www.thehindubusinessline.com/economy/policy/e-way-bill-generation-touches-10-crore-mark/article24234586.ece
Comment: Centre has the fiscal space to rationalise rates and trim cesses. States received a healthy 14% growth in GST revenues in a background of depressed growth and rate reductions. Many have done much better!!
3. Benefiting consuming states
The analysis looked at the share of total GST revenues accruing to various states. States that improved their share will have done exceptionally well for themselves.
-- Consuming states did well such as "nearly all the North-eastern states as well as UP, Rajasthan, MP, Delhi, Kerala, and West Bengal"
-- A few states did "badly" and required compensation
-- Convergence of taxes explained small discrepancies among states. Here the result is more desirable than the small negative impact on the revenues
Comment: Barring a few exceptions, it has worked out as expected. Open trading will increase economic opportunities, and money in the hands of consuming states will raise consumption and benefit other states as well.
4. Conclusions
"After the first nine months of implementation, there remains a full agenda for future reform: further simplifying the rate structure, widening the base to include currently exempted sectors, and streamlining procedures for filing and refunds.
"GST has been positive for all states, but especially for most of the less developed, consuming states. Overall revenues have performed remarkably, which has helped all states; and desirable and equitable impact is seen by the shift towards weaker states. Producing states are not threatened as the compensation is minimal and probably temporary."
1. Growth in total revenues
Total GST collections (incl state GST) matter the most as Centre compensates states for not meeting revenue targets.
-- Total revenues for 9mo have been very buoyant, at Rs 8.2 lakh cr (growth of 11.9%). This implies a high tax buoyancy of 1.2, though GDP had not grown by quite as much during this period.
True GST collections are estimated after stripping out transitional elements. These elements can boost future revenues (overpaid CGST credit) or depress them (pending refunds to exporter et al). As per authors, underlying growth in revenues is greater than the actual 11.9% level.
Comment: GST revenues were/ are an ever-present worry for the Centre. It now appears GST has overcome disruptions to smooth administration of taxes (incl suspension of late penalties), slow down in the economy, and more importantly large cuts in GST in Oct-Nov 2017.
2. Compensation to States
Centre had indicated it would need to give substantial compensation to states, but this is not correct once unallotted IGST and compensation cess are taken into account. Authors give the final compensation at just 5000 - 10000 cr!!
-- Authors predict higher GST growth in the coming year, due to better compliance from e-way bills and invoice matching. These powerful tools were suspended because taxpayers had complained about the complexity of the regime. NB e-way bills are fully implemented, and working well:
https://www.thehindubusinessline.com/economy/policy/e-way-bill-generation-touches-10-crore-mark/article24234586.ece
Comment: Centre has the fiscal space to rationalise rates and trim cesses. States received a healthy 14% growth in GST revenues in a background of depressed growth and rate reductions. Many have done much better!!
3. Benefiting consuming states
The analysis looked at the share of total GST revenues accruing to various states. States that improved their share will have done exceptionally well for themselves.
-- Consuming states did well such as "nearly all the North-eastern states as well as UP, Rajasthan, MP, Delhi, Kerala, and West Bengal"
-- A few states did "badly" and required compensation
-- Convergence of taxes explained small discrepancies among states. Here the result is more desirable than the small negative impact on the revenues
Comment: Barring a few exceptions, it has worked out as expected. Open trading will increase economic opportunities, and money in the hands of consuming states will raise consumption and benefit other states as well.
4. Conclusions
"After the first nine months of implementation, there remains a full agenda for future reform: further simplifying the rate structure, widening the base to include currently exempted sectors, and streamlining procedures for filing and refunds.
"GST has been positive for all states, but especially for most of the less developed, consuming states. Overall revenues have performed remarkably, which has helped all states; and desirable and equitable impact is seen by the shift towards weaker states. Producing states are not threatened as the compensation is minimal and probably temporary."
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- Review of GST by MOF secretary
-------------------------------
GST collections are good but Centre wants sustained growth in net revenues (say 14% growth) before it will rationalise the top rate (28%). Centre is hopeful of bringing aviation fuel, natural gas, etc into GST net -- but states will not easily let go of power to tax items like petroleum & diesel.
Curbing evasion would result in a big jump in collections. Measures are needed to stop false claims on input tax (eg false invoices or false export claims). These can be done by invoice matching and by verifying exports through established protocols.
Interview: Hasmukh Adhia, Finance secretary
▬ Lots of naysayers had created bad vibes in domestic & foreign media (about Govt and Indian economy) with reports of "suffering" in the informal sector, exports, agriculture, unemployment of casual workers, etc.
▬ Roll out saw adaption from officials like changing rules, notifications, penalties, etc. Technology was found lacking or not up to the mark
▬ Services may have suffered to a small extent because tax went up from 15 to 18%, while tax credit (introduced as part of GST) is not a big component
Now
▬ Better than other countries' experiences & own expectations
▬ Large nos. in the informal sector have registered. They have benefited from better credit, lower 3rd party payments, new business from those who have not registered
Remaining agenda
▬ New system will streamline returns. Aiming for simplification of returns by 6mo.
▬ Enough information to do invoice matching ("will make evasion absolutely impossible"). Input tax credits make up high 80-85% of the gross liability. If this is reduced by 5% points, revenue will go up by 25% or more!!
▬ Reverse charge is a smaller agenda
▬ Rationalising 28% will wait for better data & GST growth of at least 14%
▬ Discussions are on for bringing fuels/ power into GST. States are sensitive to losing revenue security & depending entirely on compensation from Centre
▬ Anti-profiteering is not a big issue
https://economictimes.indiatimes.com/news/economy/policy/a-big-success-of-gst-implementation-is-there-has-not-been-any-inflation-hasmukh-adhia/articleshow/64753864.cms
REPLY 38w - Data analytic tools for GST admin
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1. GST network (GSTN) handles data processing for GST
▬ 3.76 billion invoices & 115m returns processed
▬ 6.38m previously registered businesses and 4.77m new registrations (NB sharp increase)
▬ 1.76m are registered under composition scheme
2. GST is developing analytic tools for tax officials to identify suspect transactions & assessees.
3. States and Central tax admin will be assisted with assessing returns, conducting audits and facilitating advance rulings.
4. Management report (MIS report) for each state will aggregate data like monthly collections, no of assessees and returns, outstanding liabilities, ward level info, etc.
REPLY 38w - During the initial months, just under half of registered GST firms used to file returns and pay tax on time. Monthly filers have increased steadily and now compliance is satisfactory, according to GST Network’s CEO Prakash Kumar. Close to 70% of the 1.1 crore registrees are filing returns by the deadline. (NB. number of filings is expected to be below registrations, just as in income tax). Delays in refunds to exporters have also been fully resolved -- ie. those who have filed applications with "the correct details" are refunded within 4 - 5 days.
♦ Exporters still suffer from delays as the system is not completely automated. CBIC has undertaken special drives to clear credit refunds with manual intervention and checks
♦ GSTN is awaiting final draft of users requirements before it specifies work on a new simplified return-filing system. Detailed returns for invoice-matching will be an integral part of it.---------------------------------
“Refund process for claims filed since February has largely been smooth. We have been clearing refunds every day and it has become relatively error-free,” Kumar said. The prospect of prompt refunds, he said, encouraged exporters to use the fully automated IGST route rather than the letter of undertaking route, which doesn’t involve tax payment but only refunds of input tax credits. NB. Exporters are eligible for the refund of tax content of overseas sales.
Exporters have to declare identical details to the customs department and the IT backbone for GST refunds. The failure to match details in earlier days led to refunds getting stuck. Kumar added that the input tax credit (ITC) route for exporters still suffered from delays as it was not completely automated-- and tax officials were required to verify details before sanctioning refunds. The same is true for ITC refunds claimed by businesses supplying GST-exempt goods and those dealing in goods with inverted duty structure.
“We had the software for even automated ITC refund but it would work only with GSTR2 and 3 forms, which have remained suspended. Since there is no validation with GSTR2 and 3, the time-consuming task of manual interference is required,” he said.
The Central Board of Indirect Taxes and Customs (CBIC) has had to undertake special refund drives to ensure that refunds are cleared with manual intervention and checks. At the beginning of the second such drive, the government had said that Rs 14,000 crore of refund claims were stuck.
GSTN will start work on the new simplified return-filing system after the tax department moots the final draft (software modules related to appeals, investigation and assessment are currently being developed). Detailed returns are crucial for invoices-matching, which is integral to check tax evasion.
REPLY 38w - News flash #
GST Council could lower tax for many items in 28% slab in the next meet. Cement, paint, air conditioners, washing machines, refrigerators etc should see a reduction in tax rate from 28% to 18%. Cheaper construction material will boost housing (incl. PMAY housing scheme) and infra sectors.
Govt is likely to address concerns of textiles and others, that pay higher input levies which may not be fully recovered as input tax credits.
REPLY 38w - Detailed write up on GST
☀ Convergence of GST rates: items under 28% moved to 18 or 12% bands. Many others were shifted to lower bands of 5% and nil (exempt).
✏ 0% 141 items
3% 18 items (special)
✏ 5% 258 items
♨ 12% 223 items
♨ 18% 429 items
✂ 28% 49 items
Note:
☀ Formalisation of employment
☀ Increase in income tax filings
☀ Granular data from e-way bills
https://economictimes.indiatimes.com/news/economy/policy/one-year-of-gst-the-successes-failures-and-whats-next-on-the-agenda/articleshow/64787124.cmsREPLY 38w - Video: FM reports a massive increase in advance payment of income & corporate taxes!!
Blog under: https://www.financialexpress.com/economy/full-text-arun-jaitleys-blog-on-impact-of-govt-policies-on-direct-tax-collections-money-in-swiss-banks/1225596/
REPLY 38w - Very interesting side-benefit of e-way bills. Govt must decide whether granular data on goods movements and truck logistics will be made available, eg for booking slots in empty returning trucks, assessing economic activity, planning infra, etc.
REPLY 37w - Has GST met its lofty aims?
----------------------------------
- higher indirect tax revenue or lower inflation?
GST revenues have grown at 13% post-GST even after mid-year cuts in indirect taxes. More cuts are in offing. Example of lower prices leading to rocking sales is seen below: FMCG record the highest growth in sales since 2010.
https://economictimes.indiatimes.com/small-biz/policy-trends/gst-rings-in-highest-growth-for-fmcg-since-2010-as-price-tags-shrink/articleshow/64822290.cms
- higher detection of tax evaders?
1000s of crores of evasion have been detected. Govt has moved to acquire advanced data analytic tools to handle new streams of data. Invoice matching will come by Sept 2018.
https://economictimes.indiatimes.com/news/economy/finance/nowhere-to-hide-as-gst-data-unearths-tax-leakage-fraud/articleshow/64821062.cms
Further evidence of formalisation: FMCG industry reported record sales because experts say GST and e-way bills have made it difficult for the unorganised sector to survive (see above).
- higher investment in manufacturing?
Growth in capital goods output has gone up in Nov 2017, from 5.3% to 9.4%. This implies an increase in investment.
https://plus.google.com/100789863972538583352/posts/9VxsZLvYo4d
Manufacturing is healthy as seen in June's manufacturing PMI @ 53.1.
https://www.livemint.com/Money/yp36lQySx7tm55Lyff5c7H/June-PMI-shows-economy-rebounded-from-demonetisation-GST-ro.html
- reports of trucks not being stopped at state border?
This was reported in the first 2 weeks itself. But harassment from local police units continues for collecting bribes (as per economic times). Also, toll polls must be streamlined by providing exclusive speedy lanes for FAStag users.
- higher km/day done by trucks?
Average trunk travel had increased by 43% to 300-325 km a day, according to Ministry data till 2017. TCI Express CEO stated (Nov 2017) that average distance had increased to 400-450km which is a step up of 100-150 km from the pre-GST period.
https://economictimes.indiatimes.com/industry/transportation/long-haul-trucks-covering-greater-distance-post-gst-govt-study/articleshow/62126045.cms
- reports on feverish growth in central logistics?
Many such reports, eg my link.
https://plus.google.com/100789863972538583352/posts/HZSSNcRjtVk
- reduced export prices, higher exports?
Exports impact is more long-term in nature as it has to do with better logistics, economies of scale & manufacturing investment (MII, tech upgrades). Nevertheless, exports have risen sharply in 2018, but so have imports. June survey of manufacturers reports that "orders from international markets rose at the strongest pace since February." Devaluation is likely to be the most important factor for the June report.
Exports had fallen in the aftermath of GST introduction, probably due to delays & mismanagement of export credit refund, and due to false claiming of same by unscrupulous parties.
REPLY 37w - A comprehensive article on GST by Jaitley, finance minister. Covers legislative journey, GST council, economic impact and political controversies.
REPLY 37w - Increased tax compliance and what it means for govt and taxpayers
1. Tax compliance----------------------------
Govt has succeeded in increasing the tax base. New ITR fillers shot up from 85.5 lakh to 99.49 lakh -- a growth of 16.3% over one year! Significant increases in income tax filers mean there is higher compliance in direct taxation.
There was a 18% increase in the direct collection in 2016/17. Income tax is now 6% of GDP. Direct tax buoyancy has jumped from 0.6 (2015/6) to 1.9 (2017/8).
Demonetisation and GST should be credited for better compliance. GST will further improve income tax collections next year. The sustained effort of taxman -- incl outreach programmes and structural changes in the law are worth mentioning.
2. What it means------------------------
Higher tax compliance helps to makes govt accountable to taxpayers. Voluntary tax compliance leads to relaxation of anti-tax evasion measures and lower income tax rates.
In normal circumstances, the Indian govt doesn't have enough resources to adequately fund social and physical infra, while it also runs a high fiscal deficit.
Higher taxation revenues translate into healthy macro-economic indicators as well as higher govt spending.
Higher govt spending also leads to better quality spending with an emphasis on long-term solutions. This means purposeful spending for better quality education, health, law & order, innovation, etc leading to improved employment, industrial development, better environment, etc.
An improving socio-economic situation brings forth more and more productive communities, lower crime rates and overall prosperity. It also ensures economic growth that continues for some time.
REPLY 37w - How reforms can help make Indians tax-compliant
-------------------------------------------------
─ Pre 2017-18 actions, incl demonetisation, tax declarations
─ Tracking large financial assets and use of technology
─ Aadhaar-PAN linking
─ Form26AS changes
─ GST
─ Digital transactions
Pre-GST actions
Govt has taken several serious steps till 2016/17 to enhance compliance level. Impact of above yielded 25% higher personal tax filings but was perhaps not satisfactory.
1) Enactment of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, for black money stashed overseas
-It made stringent provisions for non-disclosure of overseas assets and income.
2) Income Declaration Scheme 2016 for declaring domestic undisclosed income and assets yielded ₹ 29,362 crores. Earlier similar was done for foreign assets & incomes, which yielded little.
3) Demonetisation in November 2016 was a bold step, with an aim to flush out black money.
Why was this not enough?-12.5 million cars were sold in the past five years and 20 million individuals travelled abroad in 2015.
-- Yet, out of 37 million tax filers in 2015-16, only 172,000 reported income above ₹ 50 lakh.-18.9 million salaried taxpayers paid on average ₹ 76,306 as tax, while business taxpayers, almost equal in number, paid just ₹25,753.-Increase in tax paid was not consummate to higher tax filings
What are the remaining options?
1) Tighter rules for making income tax filings. More regular filings & fines for not filing, regardless of whether the tax was paid.
2) Track large financial transactions on the tax records, and use of technology.
3) Linking Aadhaar with PAN, reconciliation of Form 26AS details with returns, the introduction of GST, and promoting digital transactions.
4) Ease of filing and more efficient tax administration, eg easier forms, quick processing of returns, tracking & clearing tax refunds, responding quickly through "compliance portals".
5) Simplification & reform of whole direct taxation legislation (before end-2018)
Govt must listen and address grievances
Eg
1) Inability to file accurately due to practical difficulties of getting information from other tax jurisdictions.
2) Simplified method for assessing the fair market value of unlisted shares or share options benefits.
REPLY 37w - SUMMARY
As it stands now, GST is neither good nor simple. GST has not been good because it has lowered GDP growth in the first 2 quarters and not brought the hoped for 2% premium on GDP growth. (Edit: signs of higher growth from 3rd quarter onward). GST is not simple because it fails to meet expectations of business in terms of straightforward input tax credit relief. Businesses had also complained about complex new procedures and IT systems failures. Govt has misgivings over large tax credit claims, many of which are bogus.
Uncertainty over input tax credit, bogus claims, IT systems inadequacies and confusion over 2 standards rates, have not only hurt govt revenues but also created administrative delays, inconsistencies and compliance issues.
The author believes that input tax credit should be given for all genuine business expenditure. To this end, govt should implement workable anti-avoidance measures which will overcome its misgivings on bogus claims. Invoice matching and reverse charge seem to give that assurance. The author believes simplification will make tax regime easier to administer and improve India's ranking in Ease of Doing Business. This can be done by merging standard rates of GST (12% & 18%), simplifying GST returns, upgrading GSTN (incl admin tools to improve responses and standardise advanced rulings) and improving internet coverage.
COMMENTS
Previously govt was under political and revenue pressure. But as the situation improves, govt can revert to its original plan with improved measures, procedures and support. GST 2.0 should be able to deal with most outstanding issues.
It makes sense to rationalise high rates for commonplace items (like building materials and household appliances). Fuel excise duty should be allowed input tax credit (within broad limits, as the expenditure itself can be disallowed if not used for business).
This does not mean moving to a single nationwide rate. Special rates for some items are not difficult to administer except that vendors will have to prepare supporting documents. For example, cars & jewellery can easily be tracked. Fuel can be charged in the same way as cigarettes and alcohol. For example, a manufacturer or importer pays an upfront fixed duty and then applies standard excise duty.
UK taxation on fuel can be a template for India---------------------------------------------
Fuel duty is a fixed tax collected by approved motor fuel suppliers -- who are also responsible for record keeping and full accountability. UK taxation is actually quite complex, as it varies depending on "proposed or actual use of fuel". In other words, fuel duty is not applied to agricultural motor fuel or heating oil, but the system ensures leakages are prevented, eg agricultural fuel is coloured (called "red diesel").
UK fuel duty text:
"The Fuel Duty rate you’ll pay depends on the proposed or actual use of the fuel and the type of engine. For example, if a substitute or additive will be used as road fuel in a diesel engine, you’ll pay the rate for diesel for road use. You’re also responsible for record keeping and accounts."
"Fuel Duty will be due if any of the following happen:
-- the fuel is sent out from registered premises
-- the fuel is used as motor fuel
-- the decision is made that the fuel will be used as a motor fuel"-----------------------------------------------
FULL ARTICLE
GST: A bold reform, fix the small chinks
GST has dismantled inter-state trade barriers and converted India into a unified market of 1.3 billion citizens. With the government placing emphasis on curbing black money, GST can significantly complement this effort, being less intrusive, more self-policing, and hence a more effective way of reducing malpractices and rent-seeking.
Incentive schemes, devised as a tool to attract investment by state governments by granting tax exemptions, have been found unsuitable under GST, prompting the government to move to an alternate scheme in the form of a cash refund. The Union government too has dispensed with the area-based exemption schemes. This resulted in the elimination of mushrooming exemptions, tax cascading and the tax-induced distortions.
The GST revenue trend largely has been in line with the expectations. Indications of April-May’18 promise a monthly GST mop-up touching Rs 100,000 crore in the current fiscal year. The GDP’s GST dividend, estimated at 2%, appears a far-cry as things stand now; however, Q4FY18 and Q1FY19 figures indicate things could get better.
The elimination of the multi-layered indirect tax structure, introduction of uniform GST rates across the country and GST registration, which facilitates cross verification of income tax returns, have the potential for increasing compliance in the coming times.
Invoice matching (still in nascent stage) has driven the parallel economy to join the national mainstream. Over 40 lakh new taxpayers have obtained registration under GST to avail the benefit of input tax credit and to levy GST on supplies. The number of return filers and collections under income tax also have shown a significant increase, of 26% and
17%, respectively.
Limitation in GSTN functionalities, poor IT connectivity and multiple return filing requirements have caused initial challenges for business and tax authorities. The government, with a view to addressing the apprehensions of the business, proactively relaxed the return filing process. However, this, in turn, necessitated suspension of credit matching and return validation process, which formed the fundamental pillar on which the GST roll-out plan was based.
Simple periodic filing procedure is an essential feature of any simple tax regime. The government has been quick to notice this deficiency; corrective actions are on the anvil, and it is expected that the revised, simpler filing process would be implemented towards the third quarter of the current fiscal year. Certainty is the cornerstone of a sound tax form. Divergence in views among Advance Ruling Authorities calls for a suitable alternate mechanism. Leaving out genuine business expenditures (rent-a-cab, employee insurance, food and beverage, construction, etc) from input tax chain doesn’t augur well, especially as the stated objective is to remove tax cascading. Issuance of administrative instructions and circulars conflicting with statutory provisions and time tested principles would dwindle the confidence of the business community. This requires urgent attention of the policymakers.
Follow-up actions are required to consolidate the gains and address the concerns of the stakeholders. Convergence of four-tier GST rate slabs into three by merging 12% and 18%, would help reduce dispute on classification, tax rate and check evasion. It is the appropriate time to examine the need for integrating petroleum and power sectors into GST. Energy, petroleum (transport fuel), construction and real estate, textile, fertiliser industries and exporters are reeling under inefficient input tax credit mechanism, archaic valuation rules, inverted tax rates, delayed refunds, etc, and that requires immediate attention.
The government deserves compliments for the bold initiative to introduce this much delayed fiscal reform. Course-corrections would act as a catalyst in achieving the aspiration of taking India to the first 50 countries in ‘Ease of Doing Business’.
REPLY 37w
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