Interim budget: Positive fallouts of GST in focus

Rama Mathew, former member, CBIC

Rama Mathew

The convention is that if the government is not likely to remain in place for the full financial year, such as during an election year, they pass a Vote on Account to allow the government to continue functioning without tying the incoming government to actions, not of their making. That being the case, no major initiatives were expected to be announced during the budget. And that is precisely what has happened this election year as well. The Hon’ble FM has stuck to the convention, as she had in 2019, and announced a budget that was primarily a 'Ways and Means' exercise.

Indirect taxes

What are the indications for indirect taxes here? The first is the revenue trend in Goods and Services Tax (GST). The second is the efficiency indicators in the customs logistics chain, where processing time for customs has fallen steeply for land, sea, air, and inland container depots, which are effectively inland ports. There are also the indicators in studies by private analytics firms that over 94 percent of industry leaders, including from the MSME sector, are happy with the impact of GST, which is also something worth looking into.

Insofar as the revenue trends go, the numbers speak for themselves. Starting with Rs 87,000 crore per month gross collection in the first year of the GST regime, Rs 1.24 lakh crore per month during the fifth year, and Rs 1.44 lakh crore every month in the last financial year, the government is now averaging Rs 1.62 lakh crore per month this financial year, with quarterly month collections crossing Rs 1.72 lakh crore on a regular basis. This trend moving forward is likely to lead to between Rs 1.80 lakh crore and Rs 1.86 lakh crore per month being mopped up in the next fiscal, which is well above the GDP growth rate. Better analytics, better awareness, and better enforcement have all contributed in a major way to this growth, as have the crackdowns on fake entities and fake invoicing rackets, the numbers indicating just how entrenched and widespread these attempts at defrauding the government were.

The only two major announcements regarding GST are related to (1) putting into place mechanisms for the implementation of decisions of the GST Council on the lines of what was earlier known as the Compounded Levy Scheme for the gutka/ pan masala sector, where the numbers and capacity of the machinery installed for packing are to be registered on pain of penalty and detention, as a measure of ensuring a modicum of discipline in a high tax evasion prone sector, and (2) ISD can now pay GST for common input services under the reverse charge mechanism as per sections 9(3) and 9(4) of the CGST Act and also distribute ITC related to such common input, enabling transfer of ISD credit in firms which have registered offices in more than one location, which will settle a lot of disputes and remove a major pain point for multi-locational industry. The formulation also provides for a mechanism for how this will be operationalised.

As for the review of customs duty exemptions, this is normally undertaken as a part of the budget exercise and should therefore be a part of the full budget in July. We generally tend to not appreciate the impact of streamlining customs process timelines on the logistics chain, but our trade facilitation rankings on ease of doing business have improved dramatically with the improved timelines since we first started conducting Time Release studies for customs, which was also highlighted during the speech.

(Rama Mathew is former member of the Central Board of Indirect Taxes and Customs (CBIC))