GST on a better footing, augurs well for direct taxes PDF Print E-mail
Monday, 06 May 2019 05:51
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Even without invoice-matching, there has been a step-up in collections; information-sharing with income tax will also help


The fact that GST collections for March 2019 touched Rs 1.14 lakh crore, up 10% over that in the same month a year ago, augurs well for the future. There is little doubt, though, that there are several one-offs that have boosted the performance—the best since India first started collecting GST in July 2017. There is, for example, the quarter-end bump that is seen regularly—March 2019 collections were the highest in the previous three months, December 2018 in the three months prior to that, September 2018 in the three months prior to that, etc; this could have to do with the fact that firms try to boost sales before the quarter ends or the fact that the smaller firms have to file their GST returns every three months. There is also the year-end effect where, apart from trying to boost sales, firms work hard to ensure that all vendors upload their GST returns so that they can avail input tax credits. This time around, the impact was even higher since march 2019 was the last month to claim tax credits for 2017-18. With more firms filing GST returns—the number of filings is up from 5.9 million in July 2017 to 6 million in March 2018 to 7.2 million in March 2019.

With March 2019’s collections the highest ever, this means monthly collections in FY19 were, on average, 7% more than those in FY18, and the figure is 13% higher when you compare the January to March 2019 collections with those in January to March 2018. The two main reasons for the increase in collections and compliance suggest the system is stabilising. For one, as the growth in the number of filings show, big firms are clearly ensuring their vendor base is fully GST-compliant. And though the government keeps postponing the date for implementing the invoice-matching function of GST which increases the compliance levels quite dramatically—this was supposed to kick in on April 1 this year, but will now have to await the new government—the fact that the eway bill has become compulsory for transporting goods of over a certain amount has also played a big role in raising compliance. While the monthly run-rate of GST collections in FY20 is Rs 1.14 lakh crore, a dip from March 2019 numbers in the rest of the year implies that, as in FY19, there will be a shortfall in collections in FY20 as well; in FY19, the shortfall was `1 lakh crore on account of GST alone.

Greater GST compliance will also help raise both corporate as well as personal income tax collections as, once firms have no option but to declare their actual turnover to GST authorities, they will have to do so for the income tax authorities as well. Indeed, last week, the income tax and GST authorities signed an information-sharing agreement for precisely this reason of boosting income tax collections. This is important because, as FE reported last week, there has been a contraction, albeit a small one, in the number of e-returns filed for personal income tax in FY19 after averaging more than 25% over the three years prior to this. Indeed, when you compare the number of actual tax filings to the number of registered taxpayers, the ratio is down to 79.1%, a number not seen in the last 5-6 years. It is due to this that direct tax collections fell short of projections for FY19 by as much as `50,000 crore, all of this was in personal income taxes since there was no shortfall in corporate taxes. While there has been an impressive jump in the direct tax-to-GDP ratio from 5.6% before the NDA came to power to 6% in FY19, the big jump—from 2.1% in FY16 to 2.4% in FY17 for personal income taxes—due to demonetisation looks like it has played out unless the tax notices sent out to those who deposited unusually large sums of cash during the post-demonetisation phase result in a sharp jump in taxes once the scrutiny of their replies is over. The GST link and the gains from Project Insight—this links various databases like those from credit cards, jewelers, real estate firms, etc—are expected to lead to the next big jump in tax collections.



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