The shift to the goods and services tax regime marked a significant change in India’s indirect tax architecture. It was also an important step towards the creation of a common national market. But the transition has been marked by chaotic implementation. It was hoped that, over time, as the glitches got resolved, compliance levels would improve drastically. But, two years later, there continues to be a chasm between expectations and reality, with revenue collections falling well short of expectations.
Take the case of the central GST (CGST) collections. As against an initial target of Rs 6.03 lakh crore for 2018-19, collections stood at a mere Rs 4.57 lakh crore. The initial trends for the current financial year aren’t encouraging. CGST collections, after settlement from integrated GST (IGST), stand at Rs 1.17 lakh crore in the first three months of 2019-20. This works out to an average of Rs 39,313 crore per month. In comparison, the target of Rs 6.1 lakh crore for 2019-20, presented in the interim budget, implies a required run rate of Rs 50,833 crore per month. The difference between the two implies a shortfall in revenues for the Centre in the current financial year as well, severely restricting its fiscal space. It is also intriguing that two years on, CGST collections continue to run well below state GST collections. Part of the difference between the two can be traced to the transitional credit of the earlier indirect tax regime. But, after two years, it should have been taken care of. The other reason, which centres around the hierarchy of set-offs, has been addressed and its impact should be visible in the coming months. But clearly, even as the Centre continues to struggle to meet its GST targets, states appear to be faring better. The average shortfall in state GST revenues, measured against their protected revenue, has declined from around 16 per cent in FY18 to 13 per cent in FY19. This is a healthy trend. In fact, states like Uttar Pradesh, Andhra Pradesh, Telangana, were not paid any compensation in the first nine months of FY19, implying that they had met their tax targets.
To improve compliance and shore up collections, a new simplified return filing mechanism will be implemented in the coming months. This is a welcome development. As small firms account for a minuscule portion of tax payable (firms with revenues less than Rs 1 crore account for less than 10 per cent of tax payable, those between Rs 1 crore and Rs 5 cr account for another 10 per cent) their compliance burden could be eased further. E-invoicing could also help check tax evasion. The refund process for exporters should be streamlined. The council should also aim to rationalise the tax structure by moving towards two to three categories.