Is GST plot going awry with falling revenues, compliance?

Somewhere, the goods and services tax (GST) plot is going awry.

Experts and government officials DNA Money spoke to aver, it's not just technological challenges and compliance issues that are bogging down the new unified indirect tax. According to them, falling revenues and number of returns filed are of even greater concern, as improved compliance and revenue collection were the very premises on which the new indirect is based.

The latest GST data shows not only did revenue collection under GST in October slumped 9.5% to Rs 83,346 crore from Rs 92,150 crore a month before, but even the number of returns filed by taxpayers had narrowed to 50. I lakh from 58.7 lakh in the first month of the launch of GST.

This has set the alarm bell ringing.

"The revenue collection (under GST) has decreased by Rs 10,000 crore compared to initial months (GST has been rolled out from July). However, what is a big area of worry is the number of people filing tax returns has also gone down by around eight lakh assessees. This is an area of concern because it indicates GST is not being accepted properly because of various challenges," said a tax official, who spoke off-the-record.

The official attributed the drop in number of taxpayers in October to two reasons, "The first reason is because the government kept extending the date for submission of returns. Many would not have filed the returns thinking there will be one more extension. The second reason could be that people, who had filed returns for the first two months because they thought that on account of the matching being done in GST if they don't file returns it would get detected, may not have filed returns in October because that matching of returns to invoices has been postponed by the government".

According to the government executive, revenue collection could have slipped last month because of transitional credit for previous months being claimed in one go and huge refunds for exporters being shelled out.

"Transitionary credit, relating to excise and VAT, on GST portal did not work well till September. It started working only in October. Therefore, most people were able to take credit only last month. It could be that the credit taken by people may have shot up because of which revenue collection may have gone down. Once we have proper data on how many people have taken credit and the quantum of credit (last month), we will have a clearer picture. The second reason could be that quite a few exporters have been granted refund in the month of October. In the first two months, not much refund were made. That could have brought down revenues (in October)".

M S Mani, senior director – indirect taxes – Deloitte India, said shrinking tax compliance and revenues under GST was a "major concern".

"The reduction in the number of taxpayers filing returns and the tax collection itself would be a major concern as expansion of the tax base is one of the key objectives of GST. It is hoped that the compliance improves in the next month as many of the impediments have been removed by simplifying the entire process," he said.

Suresh Kumar Rohira, partner, Grant Thorton India LLP, said a situation of lesser revenues on a wider tax base than pre-GST regime was not desirable as it defeated the very purpose for which GST was instituted.

"If they (government) are looking at widening the tax base, there can't be a situation that there is lesser collection. Then, where do you get the money for development of the country which they are proposing," said the Grant Thornton indirect tax expert.

Mani and Rohira do not expect revenue collection to pick up in the next two months as the recent GST rate cut on over 200 items to 18% from 28% may further squeeze revenue collections in November and December.

"It is difficult to say whether revenue collection will pick up pace in the coming months. In November and December, we expect the effect of rate reduction to come into play. The revenues could go down further because the 200 odd items on which the rates were reduced from 28% to 18%, will come into effect from November 15. So, 15 days of November could see lower collection, and in December, full- month GST collection would be at a lower rate. Unless compliance increases dramatically next month, we could witness a fall in revenues," said Mani.

WHAT’S AMISS?

• The government kept extending the date for submission of returns resulting in lower compliance
   
• Many businesses would not have filed returns thinking there will be one more extension