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 01:
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 bill is to create a single, cooperative and undivided Indian market to make the economy stronger and powerful.
An Ad valorem Tax is a tax whose amount is based on the value of a transaction 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). In some countries a stamp duty is imposed as an ad valorem tax. An Example of Ad valorem tax is GST. Ad valorem means – according to value. Thus it is a tax which is flexible and depends on the value of the asset or the price of the good. In this regard, it is likely to be more progressive than a specific tax. If your house is worth more, you will pay a higher amount of stamp duty. Therefore, the wealthy tend to pay more stamp duty than those on a low income.
Figure 01: TAX
The figure 1 shows the Tax to the market as the price by the firm falls from p* to Pp, which is Pp = Pc – tax per unit. The firm’s revenue falls from P^*×Q^* to P_P×Q_t . The government receives tax revenue, given by (P_c-P_P)×Q_t, or the amount of tax revenue, given by the number of units sold; this is shaded area in Figure 1. There is an under allocation of resources to the production of good:Q_tis less than the free market quantity,Q^* .
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 cascading effect of multiple tax layers and increase revenue buoyancy for the central and state governments.
By leveraging advanced technology infrastructure and systems, the GST framework is expected to bring greater transparency and simplicity in tax administration and compliance.
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.
Pros of GST bill :
GST is a transparent tax and also reduce number of indirect taxes. With GST implemented a business premises can show the tax applied in the sales invoice.
GST will not be a cost to registered retailers therefore there will be no hidden taxes and the cost of doing business will be lower.
Some of Disadvantages/Cons of GST in India
• Some Economist say that GST in India would impact negatively on the real estate market. It would add up to 8 percent to the cost of new homes and reduce demand by about 12 percent.
•Some Economist says that CGST(Central GST), SGST(State GST) are nothing but new names for Central Excise/Service Tax, VAT and CST.