Barely a fortnight to Budget 2018, the Goods and Services Tax (GST) Council on Thursday cut rates on 83 employment-oriented goods and services. This will hit the exchequer by Rs 10-12 billion annually.
The Council is moving towards one return form, though a final decision in this regard is yet to be taken. The government also got the enabling power to have a single registration for services, a key demand of many players including those in the banking sector. This may be exercised later for specific services.
Briefing reporters after the meeting, Finance Minister Arun Jaitley said the rates were rationalised for 54 categories of services and 29 goods. These include second-hand vehicles, diamonds, and precious stones, LPG supplied to domestic users by private players, information sought under the Right to Information Act, exploration of oil, 20 litre packaged potable water, and construction of metro and mono rail.
The Council also referred the recommendations of a sub-committee headed by the Central Board of Excise and Customs Chairperson Vanaja N Sarna about rationalising rates of handicraft items to a fitment committee of officers.
These will have a “minor” impact on revenues, but this will boost jobs growth, Jaitley said. Revenue Secretary Hasmukh Adhia pegged the revenue implications to Rs 10-12 billion a year.
The rate cuts will become effective from January 25, which means the implications will be only up to Rs 2 billion in the remaining days of this financial year.
While GST collections have been coming down and reached a low of Rs 800 billion in November, direct tax collections have given the government much-needed help. Direct tax collections grew 18.7 per cent till January 15, against the Budget target of 15.7 per cent for 2017-18. These would be reflected in the Revised Estimates of 2017-18 in the Budget.
To ease the flow of funds for both the Centre and states, the Council also decided to distribute Integrated GST (IGST) of Rs 350 billion equally between them.
This prompted Adhia to say that even indirect tax collections target would also be met for the current financial year.
However, Abhishek A Rastogi, Partner, Khaitan & Co, said,”While the direct tax collections are well ahead of target, the indirect tax collections needs to be closely watched.”
State finance ministers also discussed their pre-Budget demands with Jaitley, who said these would be considered.
With assessees complaining about the return filing process, the Council heard presentations from Bihar Deputy Chief Minister Sushil Kumar Modi, who heads a group of ministers on fixing issues on the GST portal.
GST Network CEO Prakash Kumar and Infosys Chairman Nandan Nilekani also made presentations.
Jaitley said the Council is moving towards one form to file returns, but it is yet to be formalised.
The convergence of all these presentations will be worked out before the next meeting of the Council, which will take place before the Budget is presented on February 1.
However, the existing system of sale returns — GSTR1 — and summary input-output returns — GSTR3B — will continue, Jaitley said. Since there is no anti-evasion measure in the current system, GST revenues are subdued. This is particularly substantiated by the composition scheme, which yielded just Rs 3 billion in the first quarter from 1.7 million dealers. In fact, 500,000 persons have shown annual turnover less than Rs 500,000.
“Who would be a trader whose annual turnover is Rs 500,000 and still surviving? Why did you register then? That means that there is clear tax evasion,” Adhia said. To plug the loopholes, the Council is thinking of amending GST laws to make a reverse-charge mechanism (RCM) applicable under the composition scheme. Unlike the usual practice of sellers depositing the tax to the government, the buyer does so under the RCM.
“There are indications that the reverse-charge levy on purchase from unregistered businesses could come back for composition dealers, which is important to plug the possible tax leakage,” said Pratik Jain, partner, PwC India.
To a query that evasion may be due to complicated return filing process, the revenue secretary said 10.5 million small dealers filed supply returns — GSTR1 — for the first three months of the GST roll-out. This meant, he said 92 per cent of dealers have less than 50 invoices in a month or less than two invoices a day. “It’s not a big burden. It is a bogus argument that there is a lot of burden (because of the return-filing process),” he said.