Page 38 - GSTL_16th July 2020_Vol. 38_Part 3

J80 GST LAW TIMES [ Vol. 38
and hailed as a “good and simple tax”, “one country-one tax”, “a game-changer”
and “are form of the century”. The implementation of a destination-based,
standard-invoice-credit-type GST in a large and diverse federal country, at both
the national and sub-national levels ruled by different political parties, was con-
sidered a remarkable achievement and a great experiment in cooperative federal-
ism with both the Centre and State Governments ceding fiscal autonomy to
achieve a harmonised domestic consumption tax system in the country. More
importantly, 100% invoice matching to verify input tax credit was supposed to
enhance the compliance of the tax and the tax was expected to be a “money ma-
chine”.
However, three years after the implementation, not many are celebrat-
ing. Both the Centre and States are complaining about the shortfall in revenues.
In FY20, the actual revenue collection from GST of Central Government was 24%
lower than the budget estimate and 18% lower than the revised estimate. The
revenue from the tax for FY21 is budgetedat ` 6.9 lakh crore, and it would re-
quire almost 40% growth to achieve this. Of course, COVID-19 has had a severe
adverse impact on revenue collection, and even if last year’s revenue from the
tax is collected, there will be a shortfall of almost ` 3 lakh crore from the budget
estimate for FY21.
The aggregate revenue collection of Centre and States from GST (exclud-
ing the Compensation Cess) in the first quarter is 41% lower than the revenue
collected during the corresponding period last year. In June, collections rose
sharply to ` 90,917 crore after dismal collection of ` 32,294 crore in April, and
` 62,009 crore in May. It would, however, be too hasty to conclude that increased
revenue collection is entirely due to economic recovery. Of course, this is partly
due to lifting of the lock down, but is also due to delayed filing of GST returns.
The Government allowed a relaxed time schedule for filing GST returns for
March and April, and even some returns of February too got filed in June.
The States are staring at an uncertain future regarding the revenue from
GST. They joined the GST reform on the promise of generous compensation of
14% increase every year over the revenue collected from the taxes subsumed in
GST in FY17. Although there was an assurance by the previous Finance Minister
that the Centre will make the compensation payments even if it has to borrow
when the collection from Compensation Cess falls short, the present Finance
Minister, in her Budget Speech, has categorically stated, “Hereinafter, transfers to
the (compensation) fund would be limited only to collection by way of GST
Compensation Cess”. With the revenue productivity of GST continuing to be low
and the promised compensation not forthcoming States are faced with a serious
dilemma; they cannot quit the GST regime and face serious revenue uncertainty.
The revenue uncertainty is even more after the compensation agreement gets
over in FY22.
The most important reform needed now is to rationalise the rate struc-
ture to minimise the number of rates. Excessive rate differentiation results in
misclassification, anomalies, and inverted duty structure. There are at least seven
rate categories in addition to cess on certain supplies at varying rates. The much
talked about higher tax rate on ‘parathas’ is not an isolated matter. The differen-
tial tax rates on silk and jute (exempted), cotton and natural (5%), man-made fi-
bres (18%) creates serious anomalies and inverted duty structure on blended fab-
rics. Rate differentiation is also done according to the stage of production (min-
eral products and their finished goods), value of the supply, hotels (footwear)
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