Robust GST revenues show growth potential

GST collections for February were at Rs 1.5 lakh crore, registering an increase of over 8.3% year on year, higher than the nominal GDP growth of 7.5% in 2019-20. This is welcome. The 8.3% growth comes from 12% growth in domestic transactions, but sluggish economic activity dragged down imports, leading to a dip in collections from Integrated GST that is charged on imports.

The unevenness between collections from domestic transactions and from imports suggests that better administration of the tax may have helped the rise in collections. New changes such as e-invoicing and new returns slated for next month are expected to provide more stability. This is fine, but structural reforms that include rationalizing rates are critical to making GST revenues buoyant.

Reportedly, industry has raised concerns over the blockage of input tax credit claiming that this could have led to higher collections.

Blocking input tax credit is not good practice. The GST Council must ensure that manufacturers and exporters can claim tax credits on their input purchases on time. So, the so-called reverse charge should be made the rule for all input purchases by firms that no longer qualify as small. This will enhance collections and widen the tax base as small suppliers would come under the GST framework. The audit trail will automatically widen the tax base and provide a mine of data to be analyzed.

The case to have fewer, lower GST rates and a simpler design is compelling. All indirect taxes, including excise duty on electricity and petro-fuels, currently embedded in manufactured products that make them costly, should be brought under GST.

Clearly, the onus lies on revenue authorities to attentively pursue audit trails in the income and production chain to identify and plug revenue leakage.