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GST-Nine Months Later

Apr 2, 2018

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The Goods and Services Tax (GST) has been in existence for close to nine months now. By now, we have sufficient data and other evidence to figure out, how well the nation has taken to this new tax.

Let's first start with how the GST collections have been between July 2017 and February 2018. Take a look at Table 1.


Table 1: GST collections
(Amount in Rs Crores) MonthCollection
August, 201793,590
September, 201793,029
October, 201795,132
November, 201785,931
December, 201783,716
January, 201888,929
February, 2018*85,174
Source: Lok Sabha Unstarred Question Number 4809 and www.pib.nic.in
* Up to March 26, 2018.

As can be seen from Table 1, the GST collections have fallen over the months, after having peaked in October 2017. Let's dig into the numbers in a little more detail. The total GST collections for the month of February 2018 stand at Rs 85,174 crore. Out of this the central GST amounts to Rs 14,945 crore. In the month of January 2018, the total central GST collected had amounted to Rs 14,233 crore.

If this trend of central GST collected continues in the months to come, the central government might get into some major trouble on the revenue front. The question is why? In 2018-2019, the central government expects to collect a total of Rs 6,03,900 crore, as central GST. This amounts to Rs 50,325 crore per month, on an average.

The current central GST collections are nowhere near this number.

In comparison, in February 2018, Rs 42,456 crore was collected as integrated GST, which is split between central and state governments. In January 2018, the total integrated GST collected had been at Rs 43,794 crore.

Further, Rs. 12,140 crores is being transferred from integrated GST to central GST account for February 2018. Thus, the total central GST collection for the month will be at Rs 27,085 crore (Rs 14,945 crore + Rs 12,140 crore). This is nowhere near the Rs 50,325 crore that the central government expects to collect every month through central GST.

If this trend continues in 2018-2019, the revenue expected to be earned from GST, will be way short of what has been projected, unless central GST collections improve significantly from their current level.

Clearly, there is a problem here.

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Around 1.05 crore taxpayers have been registered under GST up until now. Out of this number 86.37 lakh taxpayers are required to file a monthly return, the rest come under the composition scheme and are required to file the GST return quarterly.

Of the 86.37 lakh taxpayers who need to file their returns monthly, 59.51 lakh filed their return for the month of February 2018, up until March 25, 2018. This basically means that only 69% of taxpayers who are required to file a monthly return, did so. So, nearly a third of the taxpayers who are supposed to be filing tax returns, aren't doing that currently.

The question is why is this happening? The GST network carried out a survey in October and November 2017, and the answers it got are fairly interesting. Let's take a look:

1) There were gaps in general understanding of the electronic processes for complying on GST Portal (Specific technical Issues like Digital signature related problems etc.)

2) Helpdesk is not able to respond to problems effectively.

3) Mistakes in return cannot be corrected.

4) Site performance being slow and has multiple problems.

5) Contextual help not available. Errors are generic and non-intuitive.

6) It is extremely difficult to reach helpdesk. It takes a long time to respond to issues escalated.

In fact, almost all the issues raised above could have been tackled if the government hadn't launched GST in a hurry and come up with a simpler system design. Also, system design isn't really a strong point with the Indian government. This clearly comes out in the answers to the survey. Anyone who has filed his income tax return would vouch for this.

Over and above what the survey found out, the World Bank in a recent report provided evidence regarding the complexity of the Indian GST system. As the World Bank said: "The Indian GST system currently has 4 non-zero GST rates (5, 12, 18, and 28 percent)... Most countries around the World have a single rate of GST: 49 countries use a single rate, 28 use two rates, and only 5 countries including India use four rates. The countries that use four or more rates of GST include Italy, Luxembourg, Pakistan and Ghana. Thus, India has among the highest number of different GST rates in the world."

The Indian politicians may have their reasons for doing this, but multiple rates, do complicate things for those who need to follow the GST system (remember self-assessment is at the heart of this system).

Take a look at Figure 1.

Figure 1:

Other than having too many rates of tax, India also has one of the highest GST rates in the world. As the World Bank pointed out: "Comparing the design of India's GST system with those prevailing internationally, we note that the tax rates in the Indian GST system are among the highest in the world. The highest GST rate in India, while only applying to a subset of goods and services traded, is 28 percent, which is the second highest among a sample of 115 countries which have a GST (VAT) system and for which data is available."

Take a look at Figure 2.

Figure 2:

Basically, there are too many design issues with India's GST, making the system essentially complicated for people to follow. To this criticism, people have pointed out that the earlier system of multiple tax rates with no input credit was even more complicated. This is true. But people making this criticism do not get two points.

First, their criticism is valid for the indirect tax system that prevailed on the sale and movement of goods. It is not valid for services. The service tax system was inherently simpler than the current GST, even though no input tax credit was available (but then the rate tax was also lower at 15%). And 50% of the Indian economy is services, is a point which is worth remembering. Also, the service tax had to be paid after it had been collected from the customer. Now, GST needs to be paid, after the invoice is raised, irrespective of whether the GST has been paid or not.

This has led to many a small entrepreneur facing working capital issues, and in the process financing big corporations, which take their own sweet time to make the payment. As a freelance writer, we have been facing this problem at our small level as well. And it's not a great place to be in.

Second, the entire idea behind GST was to expand the tax base and get more people to pay tax. A complicated system of filing returns goes against this entire idea. In July 2017, the total number of taxpayers who were required to file tax returns stood at 59.57 lakhs. This has since then increased to 1.05 crore. Nevertheless, the total tax collected has fallen from Rs.92,283 crore to Rs 85,174 crore. What explains this increase in number of taxpayers and falling tax collections? The complicatedness of the GST system.

The GST council is handling this in a very piecemeal manner, where they keep coming up with new rules every month, and create a bigger headache for those who have to follow the system. Instead, what is needed is the simplification of the entire system of following and filing the GST. And that is easier said than done because among other things it would mean admitting to having screwed up, which politicians don't like to do.

Of course, it is unfair to just blame the system design. Tax evasion, as always, continues. But that was always a given. A simpler system would have clearly helped in tackling this.

Regards,

Vivek Kaul
Vivek Kaul
Editor, Vivek Kaul's Diary

PS: Sensex 100,000 will have lots of winning stocks. Some may already be in your portfolio. Some may be on your watchlist. And this service will help you figure out the rest. Read on to find out more...

Vivek Kaul is the Editor of the Diary. He is the author of the Easy Money trilogy. The books were bestsellers on Amazon. His latest book is India's Big Government - The Intrusive State and How It is Hurting Us.

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7 Responses to "GST-Nine Months Later"

Rajesh Kothari

Apr 3, 2018

Regarding Shortfall collection, one of very important reason is Billing System to avoid Income tax Payments wherein few tax payers and Corporate companies use to purchase bills and paying taxes on that. Since that has been stopped after GST, more or less people wanted to come out with actual profits, and there is no incentive for fake sales now, the created sale stories has been reduced by very large extent. The negative impact of corrective measure. Ultimate result will come out only after seeing income tax collection for two years.

Like (1)

Gautam M

Apr 3, 2018

Once again data is being selectively picked up to show things in poor light and purposely omitting things. One crucial incident being missed while concluding declining GST collection to only evasion and that also due to complicated GST process. The event was moving almost two third of items from 28% bucket to 18% and lower bucket that happened during Oct and Nov 2017 timeframe due to massive uproar from all sections. This one event led to massive drop of 10K crore between Oct 2017 and Nov 2017 GST collection. Another event was moving the hotel and restaurant tax rate from 18% to 5%. Agreed that evasion is also rampant but this cannot be solely attributed to complex GST, most of it is due to our inherent mindset to avoid paying tax if there is an opportunity available and this is prevalent across the length and breadth of the country.
I personally believe GST is a long journey and overall collection will very soon breach the 100K crore per month mark as the economy is improving and people are moving into more organized players as compared to the unorganized ones famous for evading taxes. Also anti evasive measures will also gain pace apart from simplification of filing the GST which anyway is an ongoing process. People have a tendency of expecting miracles to happen overnight.

Please remember 9 months might be sufficient to deliver a baby since conception but might be too little time to stabilize a complex tax system like GST in a vast country like India with its too many troubles. Please have a little more patience and a little more positivity towards things.

Like (1)

S. Swaminathan

Apr 2, 2018

Hello Mr. Kaul,

I am a client of EquityMaster for 2-3 years now.

Some Discrepancies in your GST/ Earlier Regime points:

a. Service Tax at 15% did have Input Credit.
b. Bot for VAT & Services Tax, Tax was payable - irrespective of whether money collected or not.

In initial days of Services Tax - guess at around 12.36%, Srv Tax was payable against receipt of money against Invoice - but that was almost 7-8 years back.

Clubbed with the other earlier article of EQ on Cash Levels in Economy back to Pre-Demonetisation Levels - it only means that people are back to selling in Cash - You can see in many Organised Sector Stores - next door Hardware/ Electrical Store selling Paint/ Fans etc do not give Bills - on being asked the old statement that 18% will be charged is the reply. Guess Intra-City Sales are following this.

Traders have figured a way that Modi Govt will not come with harsher stricter policies as Elections are closer, although I guess e-way Bill Compliance from 1st April'2018 will act as deterrent and only savior for the Govt's CGST shortfall blues - and one point went unstated - that Center has to compensate States for Shortfall for 5 years - if Center is already in shortfall, how will they fund the shortfall.

Like (2)

Mukul

Apr 2, 2018

"Around 1.05 crore taxpayers have been registered under GST up until now. Out of this number 86.37 lakh taxpayers are required to file a monthly return, the rest come under the composition scheme and are required to file the GST return quarterly."

This is what happens when star economists consider themselves as experts without actually knowing the details. There is a large group of non-composition dealers who also file returns quarterly, including myself, having turn-over less than Rs. 1.50 crores. Consequently, the statement below, as well as conclusions drawn from this fact are flawed `lock, stock and barrel'.

"Of the 86.37 lakh taxpayers who need to file their returns monthly, 59.51 lakh filed their return for the month of February 2018, up until March 25, 2018. This basically means that only 69% of taxpayers who are required to file a monthly return, did so. So, nearly a third of the taxpayers who are supposed to be filing tax returns, aren't doing that currently."

When `experts' write based on pre-conceived agenda then facts don't matter, only the manufactured narrative is sufficient.

I have no delusions, and not everything is hunky dory with GST, especially with the forthcoming e-Way Bill roll-out. And, World Bank does not have to deal with the fractured polity of the country. In the given circumstances, to be able to get all State Governments on the same page was like weighing frogs, but with the commitment of NDA Government they did the best. It is an ongoing effort, which thoroughly biased commentators refuse to understand and appreciate.

Like (1)

Inani

Apr 2, 2018

It is a good insight reading your articles Mr Kaul, however I find a big bias against every step that the present Govt seems to take. I am neither pro-NDA nor against it - but would like knowledgable people like you to appreciate what is right for our economy.
First - the Demonitization - I continuously see your negative reactions on this move. Would like you to comment then on the following...a) what happens to the massive data collected of people who haven't paid taxes so far and are now thrown open by depositing undeclared cash ...b) what is your take that post Demo - the number of tax payers have suddenly gone up...c) what is your view on massive amount of money lying in accounts of benami entities / companies that people have not come forward to claim..d) and your final view on this entire money coming into the banking system for once, leaving a trail and possibly going back to work which hitherto was lying in some sukhiram's bathromm walls - which has the capacity of at least now generating reveues for economy going forward....Loads of it - but somehow every time you come on air, you want to suggest that the economy has taken a step back without yielding anything...Will appreciate your clarifications.
Second - On GST step - Your argument is not w.r.t. the concept, I guess, but on the way it has been rushed. Well, I might have accepted that as an argument but having known India, its' democratic set-up and the federal structure - I had lost complete hopes that this bill which was hanging fire for almost two decades will ever see the light of the day. More slabs and higher rates are issues that can be addressed as we go along - but this time was the best opportune time of barging GST as a system on the constituents - when the Govt of the day enjoys full majority. Can you suggest any other time if you are convinced on the idea per-se?
Inani BP

Like (1)

Mayur

Apr 2, 2018

Hi Vivek,
Great analysis of data. However I disagree with two points.
Firstly that GOI should have waited and taken more time to implement GST perfectly. GST was a necessary demon and also needed urgent implementation. No system of such huge magnitude can be perfectly implemented and such minor issues were on expected lines and can be corrected.
Secondly I don't agree that GST should have been simplified to single/double rates. Considering already complicated tax system of decades, economy would have got really messed affecting many industries as well as govt revenues. Maybe in future same can be implemented gradually.
Regards,
Mayur

Like (1)

Dr. Ravindran Pranatharthy

Apr 2, 2018

Vivek Kaul is known for his incisive and bold analysis. Greetings to him. While he correctly said that service tax was simpler than the current complicated GST, there are several errors in his article on GST espcially with regard to service tax. Input tax credit was available to service tax assessees in the form of input goods, capital goods and input services. So, it is simply erroneous to say that service tax assessees paid the tax without being able to avail input tax credit. It is also erroneous to say that service tax was liable to be paid only after collecting the receivables from the customers. This facility of paying service tax after collection of receivables was scrapped by Pranab Mukherji with effect from 1.4.2011 optionally and compulsorily with efcet from 1.7.2011. So, since July 2011, taxpayers had to pay service tax irrespctive of whether they had received consideration fom their customers or not. Vivek may see two very significant factors of ease of complying with service tax not figuring in his lucid article. The service tax returns were bi-annual and not monthly like now under GST. Unlike the GST, the service taxpayers were also allowed to keep centralized registration at one place and pay tax and file returns from the centalized location of their choice. All these were lost under GST. The current GST is complicated because instead of following and improving upon the relatively less complicated central indirect tax compliance pattern, the GST council opted for the draconian and complex VAT compliance systems prevailing at the states, for the GST. The GST has been enveloped with the onerous shadow of state vat-level compliances which are simply not fit for modern tax compliance. The Govts will soon realise the damage done.

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