Revenue Secretary sees average monthly GST collections rising to Rs 1.8-1.85 lakh crore in FY25

Revenue Secretary Sanjay Malhotra was one of the key people involved in making the interim Budget for 2024-25.

The government sees the average monthly Goods and Services Tax (GST) collections rising to Rs 1.8 lakh crore-1.85 lakh crore in 2024-25, Revenue Secretary Sanjay Malhotra has said.

"So, an increase of about 11.6 percent is what we are projecting," Malhotra told Moneycontrol in an interview.

Monthly GST collections have averaged Rs 1.67 lakh crore so far in 2023-24.

As per the Interim Budget, the Central Government is estimating the Central GST mop-up to rise 13.1 percent next year to Rs 9.18 lakh crore, while gross tax revenue is seen to be 11.5 percent higher at Rs 38.31 lakh crore. With the nominal GDP growth assumed at 10.5 percent, this results in a budgeted tax buoyancy of 1.1. This is lower than the tax buoyancy for 2023-24, with the revised estimates pegging it at 1.4.

Tax buoyancy is the ratio of growth in tax collections to nominal GDP. As such, the buoyancy is said to be greater than 1 when tax collections grow faster than nominal GDP.

According to Malhotra, expecting the tax buoyancy to again stay around 1.4 next year is "too ambitious".

"A tax buoyancy of anything more than 1, year on year on year on year, if one is able to do it, I think that will be a great achievement," he said.

Edited excerpts:

The Budget Estimate (BE) for 2024-25 has a tax buoyancy of 1.1, which is down from 1.4 in 2023-24 RE. We know that nominal GDP growth is going to be higher next year. But do you not expect your compliance efforts to keep bearing the sort of rewards that you've got this year?

The tax-to-GDP ratio is a reflection of tax buoyancy. If the buoyancy is more than 1, the tax-to-GDP keeps increasing. More or less, it has been about 11 percent. Last year it was 11.2 percent. This year it is projected to go to 11.6 percent. Now, again expecting the same kind of a jump, 1.4 (tax buoyancy) will mean that it will go up to, say, 12 percent. So from 11.2 percent to 12 percent over a period of two years, I think that is too ambitious to hope for.

A tax buoyancy of anything more than 1, year on year on year on year, if one is able to do it, I think that will be a great achievement. We are projecting 1.1. We will be more than satisfied if we are able to do anything which betters the rate of growth of the GDP because for many years we have not even been able to do that.

Growth in personal income tax (PIT) collections have been much higher this year than corporate tax collections. For next year, you are expecting them to grow at a similar rate. Why?

The buoyancy is primarily coming from PIT. Of course, there is buoyancy also because of GST (Goods and Services Tax) and corporate tax. But then customs and excise duty have lowered the buoyancy.

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We can't expect the growth of PIT to be the same. We are expecting about 23 percent this year. That’s huge. We have not seen such high growth rate other than the year after COVID.

What has triggered such a huge jump in PIT?

One, incomes have of course increased. And two, better compliance and the reform measures that have been taken by the government on taxation – simplified and rationalised taxes, more and more use of technology, getting third-party information and giving it to the taxpayer, making filing of returns easier, giving them the facility to update the tax return in case of errors. Some measures were taken last year to plug leakages on the capital gains side, especially debt mutual funds, for example. Formalisation of the economy has also helped.

The next GST Council meeting will be in February?

It will be in this quarter. The date we will let you know once they are finalised.

Will the review of online gaming happen in this meeting?

Not in this meeting because it will still not be six months. The six-month period gets over only on March 31. So the meeting after that can perhaps have a look.

The online gaming industry now seems comfortable with the 28 percent tax on face value. So is a review needed?

So a review does not necessarily mean that we change the rates. A review is only to take stock and to see if anything needs to be done.

In the last three months, since the introduction of the new tax regime for online gaming, we have got an increase from Rs 605 crore to Rs 3,470 crore, which means an addition of about Rs 12,000 crore GST revenue (per year) from online gaming companies. So from Rs 1,600 crore in 2022-23 to more than Rs 7,000 crore this year and Rs 14,000 crore next year if we are able to get GST at the same rate as we got in the first three months after implementation of the revised tax rates.

The average monthly GST collection so far this year has been Rs 1.67 lakh crore. What’s your estimate for 2024-25?

So an increase of about 11.6 percent is what we are projecting. So if you make your calculation, it will be between Rs 1.8 lakh crore-1.85 lakh crore.

The GST rate rationalisation is still pending.

The GoM (Group of Ministers) has been reconstituted. The only thing is that Rajasthan has a new government so we will include the Rajasthan member. We have recently got their nomination, so we will include that.

Will government authorities take any action on certain fintech companies such as PayTm?

If there is any action to be taken, law enforcement agencies will take it. Right now there is nothing. Reuters was carrying that story, but there is nothing of that sort. I only said that if there is something, they will take action. It doesn't mean anything.

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Is there a case now for lowering the gold import duty?

There is no proposal to reduce duties on gold. Gold imports have given us good revenue. So there is no case, no proposal right now.

Gold imports have obviously moderated after we introduced the 15 percent import duty on gold in June 2022. 879 tonnes of gold were imported in 2021-22, 678 tonnes in 2022-23 and 617 tonnes this year in the nine months (April-December 2023). So it should exceed 800 tonnes at this rate. And in 2020-21 it was 651 tonnes. 2019-20, which was a non-COVID year, it was 720 tonnes.

So whatever is the impact of smuggling…I am getting almost 40 percent more revenue – 10.75 percent to 15 percent, which is about a 40 percent increase.

Is there scope to make the direct tax regime even more attractive going ahead?

It is too early to review it. Let's see once we have the tax returns for this year, the deadline for which is July 31. We expect more than 50 percent of taxpayers to shift to the new regime.

Does the speed with which people move to the new regime matter to the government?

The intent of the government is very clear, that is to make taxation simple. We saw that in corporate income tax, where 57 percent have shifted. Some of them have not shifted because of legacy benefits. But those benefits will automatically sunset because those benefits are for a number of years and those benefits have been extended. So we will see a gradual increase over there.

The point I am making is that we have made it simple. Similarly, for PIT also it has been made simple. The government has made it very, very clear that we want a simplified regime. It is in line with that, only that it was made more attractive last year. Hopefully, a lot of people will shift to this regime.

We don't want to change the tax systems or rates too frequently as well. Keeping that in mind, a view will be taken.

Are there any concerns over lower household savings because the new direct tax regime does not have Section 80C exemptions?

The mutual fund industry is booming. That is one of the benefits under Section 80C. And the old tax regime is still there. People who want to save, they can always choose to be in that regime. We have not taken away the benefits. So that is not an area of any concern as of now.

What is the next reform the GST needs?

We need to further improve compliance so that the menace of bogus entities and fake billing is somehow controlled. Right now, it is a trust-based system and we have given a facility which is being misused by some unscrupulous, non-existent kind of people who are making these bogus companies. So we will tighten our systems.

What happens today is that when A sells to B – where B further sells the wares – then B pays the tax to A, who pays the tax to the authorities. Now B can take credit for the tax when B further sells the goods. So I have given a facility to edit, which I want to remove.

Let's say the tax rate is 5 percent and B buys goods worth Rs 20 lakhs. Then B pays Rs 21 lakh to A and A pays the tax of Rs 1 lakh to the government. So A uploads the invoice which makes B eligible for the tax credit. If B is a trader and sells the goods to the consumer at 50 percent margin, so for Rs 30 lakh, then B's tax liability is Rs 1.5 lakh at 5 percent. So B uses the Rs 1 lakh tax credit and finally pays Rs 50,000.

How this whole system works is, A uploads the invoice after selling to B and you go to the portal and make the tax payment next month… But when the time comes to make the payment, A says 'No, I made a mistake. Actually, this invoice was only for Rs 2 lakh and the tax was only Rs 10,000 and the extra zero was an error. So let me edit it'. So I give the facility to edit it.

When its edited, A has not paid the Rs 1 lakh tax to the government and has printed money and given it to B. The system knows that A has passed on Rs 1 lakh, but I am allowing you to edit it.

Now, what if A is honest but B isn't? What B will do is that after getting a tax credit of Rs 1 lakh, she will say 'No, it is not for Rs 1 lakh, it is for Rs 10 lakh. A forgot to put a zero.' I know it is only Rs 1 lakh, because A has paid that. Going forward, to improve compliance, this flexibility to the buyers and sellers to revise their output liability – A revised their outward liability and B increased their input tax credit – the facility that I have given to the buyer and the seller will be removed.

So we have the data but are not making full effective use of it in GST.

Will you need the GST Council's approval for this?

We don't actually need it, but we will bring it to their notice.

In this quarter's meeting?

Yes.

So will it be effective immediately, say from April 1, 2024?

The systems are being built, so it will take some time. There has to be acceptance for each invoice… So this whole system needs a change. So that is what is being done and we are hopeful that will reduce this menace of bogus firms and fake billings.