Interview | There are still certain sectors which may require some interventions, says Finance Secretary Ajay Bhushan Pandey

Pandey pointed out that once the economic impact of the pandemic has faded, the GST Council will work towards streamlining GST further and extend the removal of inverted duty structure in more sectors.

“Let us wait for a few months and then the Council will revisit the pending suggestions and I'm sure these things will continue to be discussed in the GST Council,” he said.

Edited excerpts:

Q: The finance minister and others have spoken about further stimulus measures. What can we expect?

A: Our approach, right from the onset of the pandemic, has been to study the situation, determine the need of the hour, gauge who needs assistance or stimulus or intervention, what is needed, which section of the industry, which section of the population, and then come out with that response. It has been a case of continuous monitoring and also continuous response, and that is why the finance minister came with a series of packages and stimulus periodically. We can see the results now, we can see their impact.

This story is not yet over. We continue to receive suggestions, because there are still certain sectors which may require interventions. We are having discussions with the stakeholders concerned --industry bodies, the ministries, small and medium enterprises and various other sectors. The finance minister has already said that we will not left wanting if certain interventions are needed. We have to identify the sectors which need interventions. That is precisely why we are having discussions with stakeholders.

Q: On the GST compensation issue, why could the Centre not decide earlier to borrow and then give that amount to the states? The impression that has been created is that the Kerala finance minister spoke of legal action on behalf of dissenting states and then the Centre relented?

 Let me tell you how the borrowing issue was dealt with. It has always been maintained by us that the central government will create a special borrowing window within the parameters of Article 293. When we are saying that the Centre will borrow and will pass it on back to the states, this is the special borrowing window. Ultimately, the borrowers in this case are the state governments, it is in their books of accounts, and the guarantee is the Consolidated Fund of the State. So, therefore, let us not get into the question of a change in the stance. What we have to see is that, whether the special window facility has been provided by the Centre for facilitating loans to states. With the central government intervening and becoming a channel for the loans to the states, a special window was created which ultimately resulted in a lower interest rate. Twenty-two states and the two union territories have found it suitable and convenient and have gone for this.

Q: What is the way forward regarding the states which have not agreed to the compensation borrowing options?

A: So far as the remaining estates are concerned, the finance minister has written to the chief ministers of those states and requested them to join the scheme. At the official level, we continue to remain engaged with those estates and we will continue to try and convince them so that they can avail the loans as soon as possible.

Q: Before the pandemic, there were discussions around streamlining GST and maximising collections. What is the progress on that?

A: The discussion has been going on for the last several GST Council meetings. A committee to augment revenues was also set up. They have given certain suggestions, which the GST council has discussed. These suggestions can be put into three categories. One is that the system of the GST collections has to be further simplified and it has to make evasion and leakage much more difficult. Some of those suggestions have been acted upon, like using Aadhaar for GST registration, verifying their bank accounts, restriction on passing of the input tax credit, etc.

In the second category, we have the inverted duty structure, which has to be rationalised. One particular item was mobile phones. The rates were 12 percent and it was suffering because of inverted duty structure. So, in the GST Council meeting held in March this year, it was enhanced from 12 percent to 18 percent. And then the inverted duty structure was removed. Contrary to the then-popular perception that a rate increase will dampen the mobile phone market, it has been beneficial. The rate increase actually unlocked capital and has helped the mobile phone industry and consumers both.

Now there are certain other items also where similar demands had come and which we had already taken appropriate action. For example, wagon manufacturers, plastic bag manufacturers and others. There are certain other areas where similar suggestions are being made.  The GST Council took a conscious decision to not change any tax rate during the peak of the pandemic, So let us wait for some time and then the Council will revisit these suggestions.

Q: Tax revenue estimated in Budget Estimate 2020-21 is Rs 16.35 lakh crore. What's the shortfall that the government is estimating?

A: The revenue trends, particularly in the indirect taxes of which the GST is a major component, we have started seeing an upward movement from July onwards. In the month of September, the collection was higher than the corresponding month last year; it was a 4 percent increase. In October, we have crossed Rs 1.05 lakh crore, which is 10 percent higher than the corresponding month last year.

There are also a couple of other indicators which give a picture of how the economy was in October. This October collection of GST reflects the transactions made in September this year. We can get a sense of what has happened in October if we see the e-way bills figures. In October, it is 21 percent higher Y-o-Y. For September this figure was 10 percent.

When we analyse all these figures, we'll see that collection is recovering, and in certain areas, it is also going into the positive zone. We have to watch for the next few months and then we will have a good idea of recovery and growth trajectory.

Going by the current trend, the economy has recovered in certain areas and people have learned to live with COVID following precautions and carry economic activities. This will help us continue the momentum in a positive direction. This is the trend at the indirect tax front. So, on the corporate tax front, we see that in the first seven months, the gross tax collection is down by about 32 percent. Personal income tax is down by about 14-15 percent. So, the total gross direct tax collection is down by about 22 percent. But if we compare that with the last year, for the first six months the corporate tax rate was then actually 30 percent.

This year we have a lower corporate tax rate coupled with this pandemic effect and then if your collection is down by 22 percent, then that would mean that though the collection did get impacted because of COVID and then the reduction, the fall is not as deep as the apprehensions initially were. Indirect tax is in direct proportion to turnover. So if turnover is less by, say 20 percent, the indirect tax collection will be less by 20 percent. But in the case of income tax or corporate tax, lower turnover may drive a company into a loss which will result in zero corporate tax by that company. So in this year and again the next year, the loss has to be adjusted, which means even the next year's direct tax revenue will get impacted.

So, in the case of income tax and corporate tax, we'll have to watch for some more time, and we'll have to see how it recovers. But one factor is very certain that if turnover is increasing, if indirect tax collection is increasing over the next five months, then this will have a positive impact on the direct tax side also.

Q: What would be the revenue forgone for the LTC and festival bonus package announced? Now that it has been extended to the non-government sector as well, what is the number of employees you are looking at who would benefit from this?

The estimates have been made about the government sector, particularly the central government sector and those figures were given out when the scheme was announced. As far as the private sector is concerned, it is very difficult to estimate because, in the income tax returns, no such data earlier used to be collected on how many people have taken the LTC benefits and what has been the revenue forgone on that account. It will be very difficult to estimate exactly the revenue loss. The main objective was to spur demand.

Q: Why can’t the government say that it will not pursue the Vodafone retrospective issue further, and give that confidence to foreign investors?

At this stage, I will only say that we have received the details of the award and we are examining all angles. We will come up with our decision shortly.