Blogging about Society, individual and collective behaviour/herd mentality, nudges,economics,business,politics,sports and spirituality and on all the other subjects about which I know very little !!
The GST collections trend in India upto June 2023 in FY23-24:
April 2023: Rs. 1,87,035 crore (highest ever)
May 2023: Rs. 1,57,079 crore
June 2023: Rs. 1,61,497 crore
The average monthly gross GST collection for the first half of FY23-24 is Rs. 1,69,000 crore. This is 12% higher than the average monthly collection for the same period in FY22-23.
The GST collections have been consistently growing in the current financial year. This is due to a number of factors, including the strong growth of the Indian economy, the increasing compliance with the GST law, and the government's efforts to boost digitization and transparency in the tax system.
The average monthly gross GST collection for the first quarter of the FY 2021-22, FY 22-23 & FY 23-24 are Rs. 1.10 lakh crore, Rs. 1.51 lakh crore and Rs. 1.69 lakh crore respectively, the finance ministry said.
The gross revenue has crossed the 1.6 lakh crore mark for the fourth time since the inception of GST in the country.
With the Economy Budgeted to grow at a Nominal Growth rate of 10.5% in this fiscal, the GOI is confident of reaching its GST revenue targets comfortably, if the same momentum is sustained for the rest of the year.
The second half of the year will be crucial in that respect since the Global recession is expected to hit the country's imports and exports and consequently this will impinge on GST revenues.
GOI and RBI may have to work with Growth supporting measures at that time.Let us cross the bridge when we come to it!
India's FM is an unenviable position. Given the penchant for two steps forward and one step backward in all economic decisions, FM is in the eye of the storm unendingly ever since the pandemic struck India. In fact, even before that, India's GDP was sliding YOY from 2016-17 onwards. It hit a high of 8.26% in 16-17 and hit the lowest so far in Fiscal 19-20 at 4.2%.
GST collections have also ebbed along with the GDP since even Nominal GDP has grown only by 7.2% in Fy 19-20.It was growing at 11.76% in Fiscal 16-17. So, this skidding of the nominal growth rate coupled with a reduction in GST rates in 2018 led to a shortfall in GST collections even though the tax base widened. The good thing about the One Nation, One tax has been the acceptance of this Taxation in lieu of VAT at the individual state level and Excise duty at the Central level. The consensus behind GST has been bought by Arun Jaitley with the commitment for providing Central funds at the growth rate of 14% YOY to the individual States, by levying Compensatory cess on luxury and sin goods. However, the Central Govt is caught on the wrong foot this year due to the pandemic. The tax collections are abysmally low and this has forced the Central Govt. to consider reneging on its promise of providing compensatory funds to the states.
In the recent 41st GST Council meeting, FM has been compelled to use the insurance phrase of Act of God i.e force majeure(or Hand of China?!), to describe the extraordinary situation due to the Covid pandemic. Due to this compulsion, the Central Govt has presented two options to the States to consider and give their replies in a week's time. Under Option 1 States may borrow Rs.97K cr at a special interest rate and the principal and the interest will be later on paid out of Compensatory cess on Cars, Soft drinks, tobacco, pan masala, and coal. Under Option 2 States can borrow up to Rs.2.35lac cr and States will have to pay interest at the market rates.Only the principal will be paid out of Compensatory Cess later and the interest will have to be provided in the States' Budgets. In this GOI has made a fine distinction between GST implementation loss and Covid induced tax revenue loss which is also hair-splitting and needlessly academic, if not contentious.
Now the overall emerging scenario is one of confrontation between the Centre and the States. All economists are now supporting the States saying that since it is the commitment of the Central Govt. it has to find the resources for funding this GST collection shortfall. Of course, they are of the view that the Central Govt can source this fund at a much cheaper cost than what the States could bargain for.This is an important point. However Finance Secretary has gone on record saying that if the Centre resorts to this borrowings, overall bond yields may go northwards, which will raise the cost of borrowings for both the Public sector and Private Sector. As a consequence, the sovereign rating of the country may be adversely impacted which will be detrimental to the interests of all sectors of the economy. But the moot point is this can happen even if States borrow for this purpose.
In the meantime some of the opposition ruled states are considering approaching SC for a direction to the Central Govt, saying that the Centre is trying to hide behind AG's legal opinions, shirking its responsibility in honoring the revenue commitment in letter and spirit. But such an outcome may not augur well for federal relationships and for the future of cooperative federalism which is touted as the big success point behind GST introduction.
However, in all this surcharged situation over who should shoulder the borrowing burden, the missing point is how well or badly States are containing their deficits in the last few years despite being given higher level of funds without much of efforts from their side. Any additional funds given without caveats are being frittered away by them in giving freebies, free EB and in unplanned revenue expenditure. So who is going to discipline them and rein in their penchant for spending without answering for outcomes? Even in May 20, when Centre gave permission for Additional borrowings through the WMA window, many states incl. Tamilnadu objected to the thinnest of the sticks like DBT transfer of EB subsidy to BPL families, that came with the carrot. States only want the carrot as their right without any strings being attached.
That said, Central Govt. must seize this opportunity to bring to light the importance of fiscal discipline at the State level by finally agreeing to resort to the borrowings on their behalf.
If you consider the Center and the State as the right and the left hands of the same person, sometimes when your right hand is full of weight to be lifted, the left hand also should chip in to bear the weight in order to balance it. Left cannot accuse the right of transferring some of the weight to it!!
GST portal has come a long way from a fledgling,fumbling and faltering days to its better days.However it has go a long way to evolve into a mature and more user-friendly phase. Now Central Govt is introducing e Invoicing with unique Invoice Reference Number (IRN) for traceability and matching concept introduction. This IRN will be given by Govt and this is to identify whether it is a valid e Invoice .
This numbering system will be similar to cheque MICR no. for the purpose of verifying the genuineness and also for the use in matching it for clearing mechanism. This IRN will also serve similar purposes.More than bigger companies this system will help MSMEs in the longer run.
For MSME bill discounting some of the banks like Axis Bank have introduced a digital platform called TREds so that MSMEs can access cheaper bank finance against their supply invoices. Ministry of Corporate Affairs have also made it mandatory for all Corporates with a turnover of Rs.500 cr and above to register under this for all their MSME suppliers to take advantage of this bill financing platform which will help them in working capital.My suggestion is that TREdS ,which is a standalone platform of the Axis bank, may be linked and integrated with the GST portal so that ,MSMEs need not have to again look for another software to do E invoicing and generating Eway bill through GST portal. If this linking is done ,as and when Eway bill/E invoicing is done in GST portal/software, it is enough to take it to TREds platform and any duplication and time loss can be totally avoided. This will also be a great marketing tool for quicker Adoption of TREds as mandated by MCA.RBI and MCA, MOF and MSME ministries will have to work together to do this immediately which will be a great boon for MSMEs making it easy for them to do business.
Today there is a heartening news that Cabinet has approved the budget decision to amend Factor Regulation Act 2011 to allow non-banking finance companies(NBFCs) to extend invoice financing to the MSMEs through TReDS, an electronic platform for facilitating discounting of trade receivables.
Now Govt should also takeup this digital linking of TReDS and GST portal softwares for MSMEs to really usher in ease of doing business and paying GST .This will also indirectly help Central Govt garnering higher GST revenues through widening of tax base
Whenever any change in the IT Act is contemplated it should be put through only one filter which is "simplification" of the tax. Revenue considerations, whether an increase or decrease, not to enter as a filter for any piecemeal or Adhoc changes during the course of the year. Simplification, reduction of tax, widening of tax base may be used as multiple filters for once a year changes in the Budget. Many times an amendment is done in the name of maximizing tax revenues and plugging loopholes. This is a pure travesty of truth. Instead, Govt should move towards simplification and ease of compliance. This obsession with revenue maximization is a colonial hangover.
Very often IRS officers and CBDT also complain about CAG Damocles sword over their heads if they don't plug loopholes. Indirectly such a plethora of amendments and tinkering goads loophole industry to become more innovative.CAs, lawyers enjoy and thrive on this.More the loopholes and more the plugging.More they change,more they remain the same!!!
Probably many are trying to say if simplified ,more taxes thro voluntary compliance can be collected. They also suggest a remedy like new simple Direct Tax Code ( DTC),which is good but may throw more complications ,uncertainty ,unintended consequences into the moribund system if this new tax code is introduced all of a sudden (like that of GST).So at least in the short to medium term, Central govt should work towards only simplification in terms of return filing, assessments, presumptive tax , reducing litigation etc and keep revenue maximization in the back burner.
One of the important points in this context needs some elaboration.AOs, CIT Appeals have a tendency to overrule a precedent Court judgment by taking a flimsy, perverted, convoluted argument or a trivial or a vexatious finding to make the court ruling inapplicable,just to maximize revenue collections and reach their targets for the year.Then deliberately they will make mistakes in calculations just to boost unpaid tax amount and threaten the assessees subtly showing it as arrears in demand.These are all euphemistically called "high pitched" assessments.!!
Few funny examples of unintended consequences or "Cobra effect" are given below:
1)Under IndAs, Redeemable Preference shares will have to be grouped under Borrowings and not to be included under Share Capital. This is in line with IFRS ,since Redeemable Pref.Shares with a fixed dividend payments have the substance similar to that of a borrowing even though by name they are called Shares.
However under our Cos. Act, 2013, the Redeemable Pref.Shares are continued to be classified as part of paidup Share capital.
This dichotomy, apart from skewing Debt:Equity ratios create other unintended consequences in the declaration of ShareCapital for the appointment of KMPs etc. and for presentation to the Lending institutions, Credit Rating Agencies etc.
An amendment in Cos. Act to align this with IndAs is long pending and would be a welcome step.
2)Similar is the case with depreciation calculation under Cos. Act and Indian Income Tax Act. Depreciation under IT Act can be charged at a higher rate (accelerated rate) allowable under the Act for claiming higher tax rebate whereas Cos. Act & IndAs prescribe lower rates for presenting the Financial Statements for declaration of dividend etc. Due to this anomaly every year Indian companies will have to work out Deferred Tax liability for deferring the tax by availing higher depreciation. Over the period the profits under Tax and IndAs will be smoothened out. This is pure legislative fiction. By aligning the tax rates under both the legislations this fiction can be easily removed. Is our Govt listening to simplification or trying to complicate things in the name of simplification.!!!
If anybody wagers on Russian roulette, most of the time winning it would depend on your luck and stars, and similar is the case of somebody wading through the muddy waters of Indian Income tax Act.
Sri. Krishnamurthy Subramanian, Chief Economic Advisor to Central Govt,yesterday, has gone on record saying that further demand stimulus measures will be announced after vaccine becomes available. Why should we link stimulus to vaccine availability is not clear. What kind of vaccine he is expecting and if the vaccine falls short of his expectations whether he would not allow roll out of stimulus?
It may become too late to wait till then.Why because, the common man has started saving his meagre earnings due to his fear about his future earnings and not due to Covid pandemic per se.In order to allay his fear about his employment and future earnings, Govt must sacrifice some near term revenue and announce some economic incentives for kick starting the economy.What better place to start than with Indirect Tax cuts. Auto sector is the biggest in manufacturing in terms of GDP and reducing GST on it from 28% and converge it with Revenue Neutral Rate(RNR) of 18% will give a huge boost to demand, and thereby to the generation of employment.The multiplier effect will be huge on the rest of the economy with ripple effects cascading throughout the economy.Difficult times demand drastic steps in terms of revenue sacrifice by Govt in the near term.The Govt.will get back more than half its sacrificed revenue by way of huge jump in volumes of goods and services produced.The feel good factor this can generate will negative the fear over the pandemic and will give a greater fillip to PM's call for "Atma nirbhar Bharat" and "Make in India" initiatives.So, one should not wait for Vaccines to announce this.We must do it on war footing. We have anecdotal examples at hand. Like Mr.Mukesh Ambani bringing in huge FDI even during Covid without waiting for it to end, the Govt. must take a cue from his proactive action and give this relief to the economy.Thiruvalluvar also says "தூங்குக தூங்கிச் செயற்பால் தூங்கற்க தூங்காது செய்யும் வினை."(Sleep over such actions as may be slept over, but not over such actions which require quick actions) This calls for immediate action on the ground to kickstart demand and to restore the confidence of common man in his future earnings, income, and employment.
RBI consumer confidence survey was done in May 2020, which came out a few days back paints a dark picture of consumer confidence. It has hit rock bottom so far.link. Whether it will hit another bottom is a moot point.
According to RBI Consumer confidence collapsed in May with the Current Situation Index (CSI) touching a historic low of 63.7 dipping from 85.6 in March 20. One year ahead Future Expectations Index entered the zone of pessimism at 97.9 for the first time after Modi govt. took charge, falling from 115.2 just two months ago.
These are all negative news, but as expected. However these are lag news and therefore markets looking for lead indicators ignored this. We all now know that Covid 19 has wreaked havoc on our economic health more than what it could do to people health.
But there are several silver linings like not many people do not expect price levels to go up. If we discount the "recency bias" in their opinions and perceptions,I still find 14.4 % people saying in May 2020 that the economy has improved. We must also keep the date of survey and context in our minds. The survey date is between May 5-17 and in the midst of Covid fear, with lakhs of migrant workers walking and shown endlessly 24x7 in TV news. Sometimes I wondered how come with so many trains and buses being stopped which were all running overcrowded, people are managing commuting and travelling. Our media has put a little spin and exaggeration to this by labelling every traveller on foot a migrant labourer leaving for his native place. Every reporter worth his salt with a mike on hand interviewed every single person on foot asking whether he was migrant labour and everyone being asked acknowledging it. Now I understand that all those trains and buses running daily are only for migrant labourers!! That is beside the point.
Coming back to my point that almost 14.4% of people still finding that the economy has improved is a testimony to the confidence of the people on the Govt. Govt has rightly acted with alacrity by announcing Rs.21 lac crore bundled package which will make supply-side fire on all cylinders. All of us agree that it is the supply side which needs time to pick and put all its pieces together. But the confidence and speed with which Supply-side can get back on its feet, essentially depends on its perception of demand perking up. The demographic dividend is a major contributor to the demand but Future Expectations Index indicator is a proxy for this perception by the Supply-side. When FEI is weak, it is time for the Govt. to understand that income levels are falling and people are losing faith in the strength of the economy. This pessimism will damage the Supply-side booster shots going waste unless the perception is reversed quickly. Opening up of the economy after lockdown will itself augur optimism but sustaining it depends on Demand-side actions by the Govt. To kickstart a flagging economy, the man on the street who is the ultimate consumer must get his job back, his income back and basically his dreams about the future back.
Govt must work for getting his dreams back without losing time. Cut Auto sector GST, for a start.
