‘Fixing banks, biggest agenda for 2018’
Revenue collections from the Goods and Services Tax could pick up over the coming months as provisions such as e-way bills for transport of goods kick in, Finance and Corporate Affairs Minister Arun Jaitley said on Thursday, stressing that lower direct and indirect tax rates are only possible when government’s tax kitty expands.
Reacting to the U.S. Government’s move to slash Corporate Tax rate from 35% to 21%, the Finance Ministry said the fine print will need to emerge in order to understand how much of an advantage it created for American firms and termed it as a manifestation of the protectionist trend in the developed world.
“Whether it is trade policies or fiscal policy in some regimes, they seem to be impacted by this trend,” said Mr. Jaitley. “I think we will have to wait for the fine print to see how much of an advantage it is. Because any regime, at the end of the day, its accounts have to tally. And if they don’t tally, it creates a further uncertainty itself,” Mr. Jaitley said.
“Which country in the world has a 5% entry point rate on direct taxes? Ten is the least any country has. You had to resort to a 5% tax in order to nudge non-compliant sections of society to get into the tax structure and get into this habit of paying tax,” he said on GST.
Similarly, he referred to talk about small enterprises being impacted by the GST, and said the GST Council had proposed a composition scheme to levy 1% tax on enterprises with a turnover of upto a ₹1.5 crore. “Now, again, can anybody tell me which country in the world has 1% indirect tax?” he asked. “It is only when your taxation base in a formalised economy expands that your ability to rationalise rates increase. Rationalisation of rates in a non-compliant society is always more challenging and more difficult. It’s only when your collection basket increases then you can cut rates. That applies to both direct and indirect taxes,” he said.
Reacting to concerns expressed by some State Finance Ministers that the revenue shortfall under GST had been higher than expected, Mr. Jaitley said, “There are future stages. One is with regard to reduction of compliance burden which, I think, is a legitimate concern and the GSTN is doing this in a phased manner.”
“There are other stages, GST invoice matching, e-way bills… Now, that’s going to really make sure that evasion becomes all the more difficult. The Council has already taken some decision with regard to some time frame for the e-way bills itself. That itself will help in bumping up collections somewhat,” he said. After healthy GST collections in the first three months, tax collected in October had dipped by about 10% compared with September.
Tasks for 2018
Mr. Jaitley said the biggest agenda for the government in the coming year was fixing banks and completing the unfinished task of strengthening public sector banks so that they can lend more to SMEs which had been starved of credit.
“We have already announced a detailed recapitalisation plan and the idea behind it is to ensure the banks’ ability to support growth and lend to MSMEs. which have been at the receiving end for the last few years due to NPAs at banks.” Banks have a lot of money and low-cost deposits lying with them, but their lending ability is constrained due to capital inadequacy,” he said, speaking at FICCI’s annual general meeting in the capital. Terming the insolvency code as critical for breaking the convention in India that debtors don’t pay, the Minister said that the entire country had to bear a cost of this as it dented banks’ ability to lend and support growth. “There are hundreds and thousands of units that are starved of funds because a few of them sat on it,” he pointed out.
Keeping up the momentum on infrastructure investments is another priority for the coming year, he said, adding that the Railways needs to ‘hurry up’ on this front to catch up with the performance of roads, aviation and ports sectors.