Microeconomics: GST revenues: Growing uncertainty
Tue, Feb 27 2018. 08 38 AM IST by Harsha Jethmalani
https://www.livemint.com/Money/W08yQB4jOjlUVIp4uEOa3K/GST-revenues-Growing-uncertainty.html
A delayed implementation of the e-way bill will allow more preparation time to businesses already fed up with the government’s ad hoc decisions on the subject. On the other hand, it leaves one wondering how long it will take for GST (goods and services tax) revenue collections to finally stabilize.
Wary of declining GST revenue collections, the GST Council in December last year advanced e-way bill implementation from its originally scheduled date of 1 April to 1 February 2018. Trial runs that began on 15 January were fairly successful, say tax experts, who were hopeful that unlike GST returns filing, history would not repeat itself with the e-way bill website. But the e-way bill portal failed the litmus test and yet again, the roll-out had to be deferred.
Last week, the group of ministers overseeing GST-related developments recommended that e-way bill for interstate movement of goods should be put into practice from 1 April this year. A final decision on the date is likely at the 10 March meeting of the GST Council. There is still not much clarity on implementation of intra-state e-way bills and invoice matching system.
Revenue inflow from the new tax regime has been below expectations so far. Official data for GST collection for the month of January has not yet been announced.
As the accompanying chart shows, there is no clear trend in GST revenue collections, which was more or less expected given the teething troubles.
But the worry is that despite government’s efforts to plug tax leakages and boost compliance, it is hard to predict if collections will start stabilizing next fiscal year onward.
“We reinstate our view that the FY2019BE (budgeted estimates) GST assumptions are on the higher side. While we do not rule out compliance-led upside, it is unlikely to feed in from the start of the year. This will complicate the budget arithmetic. July-November data indicates (on cash accounting basis) that the monthly run-rate is around Rs940 billion and FY2019E run-rate is likely to be Rs1.1 trillion, implying a growth rate of around 17.4%. This target could be difficult to achieve if compliance does not pick up from the start of FY2019,” said a Kotak Institutional Equities report dated 21 February.
If GST revenues fail to see an adequate pickup in FY19, it could spell doom for the markets. Sluggish GST revenues would mean higher government borrowing and consequently, a worsening fiscal deficit position. This, along with elevated inflation, is a perfect recipe to spook the bond market and push 10-year bond yields higher. In a domino effect, Indian stock markets could see a steep correction.
Equity analysts have been reiterating downside risks emanating from deteriorating macros due to subdued GST revenues. The fate of India’s pricey stock market valuations now depends a lot more on macroeconomic conditions than the much-awaited corporate earnings revival.
Commentary 1:
While the GST revenues and number of return filers are gradually increasing, the tax base and revenue numbers have certainly not reached expected levels, heightening the government’s anxiety over revenue being far below projections.
Tax : a compulsory contribution to state revenue, levied by the government on workers' income and business profits, or added to the cost of some goods, services, and transactions.
Government Revenue: What a government takes in from tax and other sources, such as the privatisation of government assets, to help finance its expenditure.
The Goods and Services Tax(GST) is a value added tax that will replace all the indirect taxes levied on goods and services by the government, both central and states, once it is implemented.
The basic idea of this tax is to create a single market to make the economy controlling.
An Ad valorem Tax is a tax whose amount is based on the value of a deal or of property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT). An Example of Ad valorem tax is GST. Ad valorem tax means- Charge levied as a percentage of value of the item it is imposed on, and not on the item's quantity, size, weight, or other such factor. Value added tax (VAT) and, generally, import duties are ad valorem taxes.
Figure 01: TAX
The above figure (01) illustrates the effects of imposition of GST tax. The price by the firm falls from P* to Pp which is P_c=P_c-tax per unit. Before tax the firms revenue was P^*×Q^* . After tax imposition the revenue falls to P_P×Q_t. The tax revenue that the government receives will be (P_c-P_P)×Q_t . This is shown in the shaded area. The impact of a GST results in reduced surplus, part of which is changed into government revenue, and part of which is a welfare (deadweight) loss. The welfare loss in this case is the result of under allocation of resources to the production of the good. In this case, welfare loss appears because the GST causes a smaller than optimum quantity to be produced: Qt < Q*. When a product is taxed, part of the tax is paid by consumers and part by producers; therefore the tax is shared between the two. This is because compared to the pre-tax price, P*, consumers pay a higher price (Pc > P*) and producers receive a lower price (Pp < P).1
Short term effects of GST Bill:
On the ground, this lack of readiness at businesses will impose costs in terms of both money and time. GST may disrupt the system for a few days, weeks or months as people are not yet fully prepared for the transition. Inventory pile-up, reconciliation of stock-in-trade and a host of other issues may create bottlenecks for some time
Long term effects of GST Bill:
New GST framework would move the economy towards a common Indian market, reducing the dropping effect of multiple tax layers and increasing revenue flexibility for the central and state governments. By leveraging advanced technology, the GST background is expected to bring greater clarity and simple in tax administration.
No more hidden taxes
Taxpayers are anxious about the apparent increase in tax rates after GST rollout. Consumers are anxious this would result in increase in prices, despite the government insisting quite the opposite. The consumers do not have to fear as it is the hidden taxes unified under the new tax regime and mentioned in the invoice handed to the buyer. Earlier consumers used to pay taxes without even knowing. For example, invoices used to quote VAT charged by the state and sometimes service tax payable to the centre, but did not provide a breakdown of central taxes charged on the commodity. With GST, people can be assured that the commodities have been taxed at a single tax bracket, split between the centre and the state.
Stakeholders :
Introduction of GST would be a very significant step in the field of ad valorem tax reforms in India. It would mitigate the ill effects of cascading and pave the way for a common national market.
For the consumers, the biggest gain would be in terms of a reduction in the overall tax on goods. Introduction of GST would also make products competitive in the market. Studies show that this would instantly shoot up economic growth. There may also be revenue gain for the Centre and the States due to widening of the tax base, increase in trade volumes and improved tax compliance.
Pros of GST bill :
GST reduces the amount of indirect taxes. Implementation of GST on a business will reduce the number of invoices. GST will be no hidden taxes and the cost of doing business will be lower.
Some of Disadvantages of GST in India:
Some economists say that GST in India would affect negatively on the real estate market. Some people say that SGST and CGST are just other names for VAT.
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