A direct tax rebate instead of a hike in exemption was chosen as the government wanted to ensure targeted benefits to the “most deserving” section of taxpayers, while retaining them in the tax net, Revenue Secretary Ajay Bhushan Pandey said, adding that it is fiscally manageable helped by the revised GDP numbers. In an interview with Aanchal Magazine, Sunny Verma and Sandeep Singh, Pandey also said that GST rate on under-construction flats if brought down to 5 per cent and 3 per cent for affordable housing will help the real estate sector, motivate buyers to purchase under-construction flats and at the same time will be a revenue neutral rate for the government. Edited excerpts:
There has been a Rs 1 lakh crore shortfall in GST as per the revised estimates. Are the targets for next year too conservative?
We always try to make a realistic estimate. We had projected certain revenue in the budget estimates of the current year. GST is just about 1.5 years old, this is one of the biggest tax reforms which we undertook ever since Independence. Seventeen taxes got merged; 35 states and union territories, within that also there were multiple authorities, many local body taxes that have been merged. So when we adopted GST, what it also required was that certain changes as we went along and which was in terms of processes and also in terms of rate rationalisation. Series of measures were taken on both fronts, whether frequency of returns, whether it was about the threshold for composition scheme, threshold for registration, various decisions have been taken.
Similarly, on rate rationalisation also, the rates have been reduced several times on many commodities which amounted to almost Rs 90,000 crore per annum. Based on that, we have been able to achieve certain revenue level and accordingly we revised our estimates for the current year and presented a very realistic picture of the revenue in the current year. We are in the stabilisation phase as far as GST is concerned since we are only 1.5 years old. Based on our experiences so far and all the measures that we have taken, we expect to achieve a certain level of growth in the next year and based on that we have given the budgetary estimates for the next year which we are quite hopeful we will be able to achieve that.
While there is still flux on rationalisation of rates, when do you see proper stabilisation and will we see a constant stream of revenues because as of now it has been moving in a range?
See, if you compare with the last year, our monthly average collection was around Rs 89,000 crore. Now this year, average collection is Rs 94-95,000 crore. We have crossed Rs 1 lakh crore in January, we had crossed Rs 1 lakh crore twice in this current year, so we have to watch for the revenue trends because it is not something which has been there for decades that we will be able to know that yes, it has come into stabilisation phase. Particularly, when you have merged different kinds of taxes because earlier excise behaved in a certain manner, service tax behaved in a certain manner, sales tax behaved in a certain manner and it varied from state to state. Now all have been mixed into one, so, therefore, it will require some time before we can at least understand the trend. It is a very complicated exercise that has been undertaken. In a record time, this GST has been adopted by all states as well as the Centre.
We are able to see an increase in the average monthly revenue trend. In the last few months, we are seeing a higher revenue trend. So we are able to get an idea. So hopefully it will take some more time, whether it will take few months or maybe few quarters or maybe one year, that is something which we will have to see during the next few months.
The Finance Minister in his Budget speech said that the government has also suggested GST council for reduction in taxes on housing sector. What kind of reduction do you expect and when can it possibly happen?
The last GST Council, we had taken a proposal that on real estate current tax rate is 12 per cent after the land abatement, and for affordable housing it is 8 per cent. But there the input tax credit is applied. There was a constant demand from the homebuyers and also from the developers saying that these tax rates are applicable on under-construction flats. So, the buyers are under the impression that if they buy an under-construction flat they will have to give as much as 12 per cent GST and, therefore, they are postponing the decision.
The developers wanted that we arrive at a certain revenue neutral rate. Today, what the buyer sees is 12 per cent, and with input tax credit, the government may be getting a lower amount. So a suggestion was received from the developers and other stakeholders saying that if the rate is brought down to 5 per cent without input tax credit and for the affordable housing to 3 per cent, it will be a revenue neutral rate.
The net tax which the government gets will be the same as it was getting before. It will help the real estate sector because the buyers will feel that they have to just pay 5 per cent tax or 3 per cent tax. So buyers will be going for the under-construction flats and to that extent the buyers will themselves finance the real estate project by making the instalment payments. So, that will help the real estate sector and will also motivate the buyers to go for under-construction flats and at the same time it will be a revenue neutral proposal for the government. This matter was discussed and it was decided that this matter should be examined more in detail and a Group of Ministers have been formed.
On direct taxes side, there is a lot of focus on giving more in the hands of taxpayers. Why a rebate instead of an exemption?
Rebate offers two purposes: one, it targets only a section of the taxpayers which needs maximum relief. So supposing you have a limited kitty which you can offer and you have to maximise the benefit, this rebate mechanism ensures that the benefit is availed only by the lower income category of people who need maximum amount of relief. At the same time they remain in the tax system. In exemption versus rebate, in case of an exemption, the benefit is availed by people who have high income and actually they don’t need this relief. So, if you have a limited kitty and you want to provide certain benefit, then how do you target the benefit to the most deserving section of the taxpayers?
This is a very good mechanism and it is quite a substantial relief that anyone having taxable income up to Rs 5 lakh all pay zero tax. It is also for anyone having a gross income up to Rs 6.5 lakh, Rs 8 lakh and even up to Rs 9 lakh, if they make appropriate investments in 80C instruments and if they are eligible for standard deduction or if they participate National Pension Scheme … in a way, those who have higher income than Rs 5 lakh and if they make appropriate investments and savings. For example, insurance, healthcare, education or housing loan, all these things will encourage savings, and also provide some kind of security for future. People will be motivated and prompted to invest in those measures so that at the same time while they are securing their own future, they are also taking advantage of this tax rebate.
While it does benefit a lot of people, does it put a lot of constraint on revenues? As the Finance Minister suggested, when the full Budget is presented, these benefits could be extended.
We had made an estimate of how many people will be benefited. So we find that roughly around three crore people will be benefited by this rebate and the total amount of benefit which people will get will be to the tune of Rs 18,000 crore. So, this much is the benefit which is going to the deserving sections of the society. This is an interim Budget, so naturally full tax proposals have not been there. At the time it happens before any budgetary exercise, when the full tax proposals are presented, that time various suggestions are received from various quarters and that time those proposals will be examined. But at this point of time, there are only benefits to a targetted group — which was very necessary, particularly to the middle class; and among the middle class also, the people earning less in the middle class category. They needed to be addressed and that is what has been done.
So no constraint? Is it easily manageable?
Yes, because we have presented a balanced Budget with a fiscal deficit of 3 per cent for next year and if you take new GDP numbers then for the next year, it’s coming somewhere around 3.1 per cent. So, it is fiscally manageable. At the same time, we have been able to, within that resource, to give benefit to around three crore people.