India needs to work towards stabilising the goods and services tax, removing uncertainties for sectors such as exports, the Economic Survey said while pitching for a review of tax embedding caused by the exclusion of some products from the ambit of the new levy.
“The government will also need to stabilise GST implementation to remove uncertainty for exporters, facilitate easier compliance, and expand the tax base,” the Economic Survey 2017-18 said. The rollout of the new tax was marred by hiccups related to compliance, prompting the GST Council to expeditiously revisit provisions such as rates on household goods and those for small-scale sectors. It termed GST revenue collections as ‘surprisingly robust’ given that these are early days of a disruptive change. “…revenue collection under the GST is doing well, surprisingly so, for such a transformational reform,” it said. Revenue from GST rebounded to `86,700 crore in December from Rs 83,000 crore in October and `80,808 crore in November.
GST implementation has increased the indirect taxpayer base by more than 50% with 34 lakh businesses coming into the tax net, the Survey said, highlighting the success of the new levy. Based on the average collections in the first few months, the implied weighted average collection rate (incidence) is about 15.6%. So, as estimated by the RNR committee, the single tax rate that would preserve revenue neutrality is between 15 to 16%. India rolled out GST on July 1, replacing 43 central and state indirect taxes and cesses with a single levy. The Survey said the highest number of GST registrants are in Maharashtra, Uttar Pradesh, Tamil Nadu and Gujarat. Uttar Pradesh and West Bengal have seen large increases in the number of tax registrants compared to the old tax regime. “The distribution of the GST base among the states is closely linked to the size of their economies, allaying fears of major producing states that the shift to the new system would undermine their tax collections,” it said.
GST COUNCIL: A TECHNOLOGY BLUEPRINT FOR IMPLEMENTING COMPLEX REFORMS
The GST Council, the apex decision-making body for the new tax, should conduct a review of the taxes getting embedded from products remaining outside the GST ambit. .the GST Council should conduct a comprehensive review of embedded taxes arising from products left outside the GST (petroleum and electricity) and those that arise from the GST itself (for example, input tax credits that get blocked because of “tax inversion,” whereby taxes further back in the chain are greater than those up the chain),” it said, adding that this review should lead to an expeditious elimination of these embedded export taxes, which could provide an important boost to India’s manufacturing exports. Touting the GST Council as an effective example of cooperative federalism, the Survey said the model could be used for other reforms. “Council’s model could be used for DBT… for effective implementation,” Chief Economic Advisor Arvind Subramanian said.
The Survey termed GST as the repository of data on the Indian economy. It uses GST data to establish that the country’s formal sector non-farm payroll is substantially greater than currently believed. “Formality defined in terms of social security provision yields an estimate of formal sector payroll of about 31% of the non-agricultural work force; formality defined in terms of being part of the GST net suggests a formal sector payroll of 53%,” it said.