Too faint for comfort?

While the spurt in GST collections brings cheer, it must be sustained to be impactful

As the Central government struggles to contain its widening fiscal deficit, there is some good news on the revenue front. Goods and services tax (GST) collections in the month of October crossed the Rs. 1 lakh crore mark, with total collections for the month standing at Rs. 1,00,710 crore. This momentum, coming in the midst of a marginal increase in the total number of filings compared to September, is expected to be sustained in the coming months, supported by the festive season that is under way. GST collections had crossed the comfort level of Rs. 1 lakh crore for the first time in April this year. The average GST revenue during 2017-18 was Rs. 89,885 crore. The reduction in tax rates under GST in July seems to have helped improve compliance among small businesses, leading to an increase in overall tax collection. It also helps to reduce the distortionary effect of indirect taxes. The increase in GST collections comes at a time when the Centre has been unable to control its spending in the run-up to the general election due by next summer. According to data released last week, the government’s fiscal deficit reached 95.3% of its budgeted estimate by the first half of the year. Direct tax collections too have increased over the past few years, reaching an all-time high of Rs. 10 lakh crore in 2017-18, helping to fund the deficit.

But all is not well on the revenue front. Tax revenues reached only 39.4% of the full-year target by the end of September. The festive season too has failed to meet expectations as of now with many consumer-facing businesses reporting lacklustre sales. Car sales reported by major companies until now, for instance, are flat. Various other economic indicators also have failed to impress in recent months. Core sector growth dropped to a four-month low in September. These growth-related factors will weigh negatively on tax collection in the coming months. Apart from the general macroeconomic environment, there are specific implementation issues that plague the indirect tax system. The export sector, for example, has been affected by undue delays in GST refunds worth thousands of crores of rupees. The GST collection in October is also still significantly below the expectations of Rs. 1.10 lakh crore. So the current spurt may be simply owing to the festival season. It may also be too soon to say that GST collections are on a sustainable uptrend simply based on the October collections. Collections during the first six months of the current fiscal year fell short of target by over Rs. 22,000 crore despite record collections in April. The government should continue the effort to make the GST more taxpayer-friendly, bringing down the cost and hassle of compliance, to achieve a sustained rise in collections.

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