GST: Breaking the tyranny of status quo

GST: Breaking the tyranny of status quo

Tax reforms are best implemented when revenue buoyancy is increasing. Considering this, the setting up of a seven-member Ministerial Panel for rationalising the GST rate structure chaired by the CM of Karnataka does not come a day sooner. The economy has been registering steady recovery, and with the settled technology platform tax compliance in GST has been showing improvements (revenue collection from GST reached Rs 1.17 trillion in September, the highest in last five months).

The budget estimate of CGST (including central portion of IGST and excluding compensation cess) is Rs 5.3 trillion, and collections in the first half of the year works out to 50% of the budget estimate. With increased collections expected in the festival season, actual collection is likely to exceed the budget estimate if there are no disruptions. States, too, would have more robust collections of the tax, though it might require compensation payments. The recommendations from the panel are likely to receive traction from the GST Council and help to break the tyranny of status quo in rationalising the tax system.

The increase in buoyancy of the tax not only reflects economic recovery but also the firming up of the technology platform. There was a steady increase in monthly revenue collections since last October to reach Rs 1.4 trillion in April 2021 due to improvement in tax compliance following the stabilisation of the tech platform making it easier to detect the misuse of input tax credit. The Covid-19 second wave plunged revenue collections to Rs 1.03 trillion in May and Rs 0.93 trillion in June, before reaching Rs 1.17 trillion in September. With better technology and enforcement, and due to the pent up demand for consumption during the festival season, revenues are likely to improve. Also, the stable GST tech platform will help in better collection of income tax as well, due to the possibility of cross-verification