It is being said that as a result of the introduction of GST, revenue growth in the current fiscal may fall. In the long run, will tax revenue growth go up or down?
– Jaskanwar Singh Suri
Tax revenue growth will happen in the medium and long term because of two factors.
The first is related to the very design of GST, which is a multi-stage tax. This implies that tax will be paid at each stage in the value chain and tax credits will be taken. Compliance will be ensured because the buyer will buy products and services only from a compliant seller. The level of non-compliance, which is especially high in the trading segment of the value chain, will come down — because the trader will now declare more of his transactions in order to avail more tax credits on central taxes levied on input goods, input services, and imported goods and services. A lot of this revenue will show up as increased corporate revenues on the direct tax side because the dealer will also have to declare greater incomes for the purpose of levy of direct taxes. (Direct and indirect tax information is linked through a common PAN number.)
Tax revenues are likely to increase also because of the widening of the market facilitated by lower prices — especially for a large number of manufactured goods because of lower logistics cost brought about by the abolition of various state levies such as central sales tax, entry tax and purchase tax. Lower prices will lead to higher demand and will, in turn, push up manufacturing growth and result in higher tax revenues.
Exceptions and anti-profiteering
I have two questions. One, why have so many items like crude oil, diesel, petrol, natural gas etc. been kept out of GST? And two, is it possible that the anti-profiteering clause will be misused to penalise ‘honest mistakes’? It is likely that the decisions of the nine-member committee will be eventually challenged in a court of law. Would that not put greater burden on our judiciary?
– Chitvan Singh Dhillon
To answer your first question, these petroleum items have been temporarily kept out of GST (exempted) so as to facilitate the levy of existing excise duties by the Centre and the states. This has been done partly to allay the fears of the states who get considerable revenue from petroleum products. Once the GST system stabilises, and revenue growth is seen to be good, these goods could be quickly brought into the GST net with the approval of the GST Council.
On your second question, the government has clarified that the anti-profiteering clause will only be used as a last resort in respect of large units who do not pass on the benefits of tax reduction to the consumer. There are enough safeguards in the provisions to ensure that there is no harassment of small businesses. Complaints will be scrutinised by a Steering Committee headed by a Secretary-level officer, which will, in turn, forward the case to the Directorate of Safeguards. This organisation, which also has specialists in business accounting, will look at the data. The findings will be put up to the Committee, which will take the approval of the GST Council before invoking the provision.
Losses to Jammu & Kashmir
What can be the likely losses for Jammu & Kashmir and its residents as a result of the state staying out of GST?
– Himmat Sharma
Consumers in Jammu & Kashmir will suffer if the state legislature does not pass a special GST law. In the absence of such a law, goods coming from other states will bear IGST rates, but no credit of this will be available to businesses in J&K. Similarly, goods going out of J&K will be more expensive outside because of double taxation. This is because of the special status given to J&K under Article 370 of the Constitution. This implies that whatever provisions have been passed by the rest of India would not be automatically applicable to J&K unless J&K specifically incorporates this through a special legislation passed by the J&K Assembly.