Going by the numbers (Lower GST collections)

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Going by the numbers (Lower GST collections)

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• Q1 shortfall: It is estimated that the April-June 2018 shortfall is Rs.43,000 crores! The no. of returns under CGST are substantially lower than those under the SGST.
• Basic logic: 

1. CGST and SGST are applied at same rate on identical tax base. So they must give same revenue. But SGST > CGST for many months now! 
2. IGST collections shot up from April 2018, as both CGST and SGST reduced. So there are two riddles!

• Basic logic in GST: Centre can tax sales anywhere in India, but states can do so within their territory alone. The GST is levied at the point of consumption, and not factory gate (like the earlier levies of octroi etc.) If goods are sold outside the state they're produced in, IGST is levied.
• Understanding the discrepancy: 

1. States wanted an SGST component in GST, to protect themselves against loss of fiscal autonomy (guaranteed by the Constitution within state boundaries, on sales of goods). All 29 States and 2 UTs have enacted their own SGST laws (same rates to prevent inter-state arbitrage). All are distinct SGSTs. 
2. SGST complexity : Because we really have 29 + 2 = 31 SGSTs, the process of collection and refunds is very complex. So overall, IGST has become too complex.

• An ideal system would have been: (a) For intra-state sales - GST = CGST + SGST, and (b) For inter-state sales - GST = CGST + IGST But in reality, for inter-state sales, IGST = CGST + SGST is levied. So where is the CGST (a national tax) in inter-state? Not there.
• Operational process: An exporting seller from a state (to another) charges IGST. The portal GSTN credits it to IGST account. Of that, the CGST part is credited to Central Govt. and the balance is stuck for many months (not transferred immediately due to a hugely complex refund settlement process). Remember, all IGST collected is not GST (though most assume so!).
• Why complex? Some refunds are to be made on input tax credits for the purchasing dealer of importing state (ITC = to avoid cascading of taxes).
• Estimating GST tough: Due to complex IGST system, any prediction on tax collection is tough to make.  
• Problem with exporters: Since exports are zero-rated (we don't want to export taxes), exporters are not supposed to pay GST. But first, they are asked to pay IGST and then it is refunded to them! Logic given? We have to have a way to refund the input taxes exporters pay on components.
• GSTN workload: It processes many IGST payments only to refund them (not done globally). All suppliers to exporters have to register in GST even if they are exempt! Exports have become costlier due to this, and everyone is unhappy. India is paying the price as our exports competitiveness has gone down.
• Vijay Kelkar had suggested it: The IGST global norm was clearly explained to Modi govt by Mr Kelkar (also the task force head under NDA 1 in 2004) but it was rejected. All the govt needed to do was to make IGST = SGST for inter-state transactions.  Exporters won't be subjected to it, and be truly zero-rated. NITI agrees.
• Simplify before it's too late: Our overall economic benefits are reducing due to the present complexities. Mere collection figures indicate nothing, it's the efficiency that counts.
• Summary : Far from giving a level of comfort, the complexities of GST have hindered robust tax collections and reduced the potential economic benefits.

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