FEBRUARY 01, 2021

By CA Pritam Mahure

THE Economic Survey 2020-21 ('ES') highlights various critical aspects pertaining to GST as well as its impact on economy. However, there are certain missing links in the ES which needs deliberation as discussed in following paras.

1. E-way bill and economy co-relation

ES highlights that during lockdown in the fight against COVID-19, total e-way bills generated witnessed a sharp contraction and subsequent gradual relaxation of restrictions, E-way bills in terms of total assessable value generated and value generated per person regained momentum and persistently improved. ES further states that 'E-way bills are a strong leading indicator of revenue collections, supply chain corrections and logistics growth'.

However, it may be noted that E-way bills are raised for 'movement' of goods. Thus, even if there is no 'supply' still e-way bill is required to be issued such as for goods sent to job worker etc. Further, e-way bill will be required also for goods shifted to distinct persons in other States. Thus, if the e-way bill data is to be taken as a basis for conclusion then all such e-way bills (such goods sent to job worker, distinct persons etc.) may have to be ignored. Given this, its surprising that the ES places reliance on e-way bill data stating it as a 'strong leading indicator' !

2. GST collections and economic 'recovery'!

ES states that 'Owing to the recovery of the economy over the past few months, the monthly revenue collections have witnessed a revival. The monthly GST collections have crossed the 1 lakh crore mark consecutively for the last 3 months, reaching its' highest ever in December 2020. … The recovery in GST collection has been due to the combined effect of the rapid economic recovery post pandemic and the nation-wide drive against GST evaders and fake bills along with many systemic changes introduced recently, which have led to improved compliance.'

From the aforesaid, it can be observed that the ES attributes the revival in GST collections to three key factors i.e. economic recovery, drive against evaders/ fake bills and systemic changes.

However, although the GST collections are all time high, still one needs to be careful with these numbers as, prima-facie, the bifurcation is not available for GST 'recovery' related to past period, recovery on account of fake invoicing, denial of input tax credit, payment during Annual Return and Audit (as FY 18-19 Audit due date was 31.12.2020) etc.

Given the aforesaid while ES places reliance on GST collections to indicate 'economic recovery' still the GST collection, per-se, may not serve as an apt yardstick without the bifurcation between these numbers!

3. Enhancing the experience of an honest tax payer

The ES states that 'Reforms in tax administration have set in motion a process of transparency, accountability and more importantly, enhancing the experience of an honest tax payer with the tax authority, thus incentivising tax compliance.'

However, while the ES states this, the ground reality may differ! It is pertinent to note that even 43 months after introduction of GST in India, genuine taxpayers continue to struggle with numerous technical glitches.

Further, genuine taxpayers, inspite of paying GST to vendors and receiving goods/ services carry the risk of denial of input tax credit on account of non-payment or delayed payment of GST by vendors. Additionally, humongous reconciliation of ITC details (on the basis of Form 2A, 2B etc.) complicates input tax credit like never before. Thus, its surprising that ES does not provide a rationale but only mentions about 'enhancing the experience of an honest tax payer'.

4. Tax to GDP ratio!

As per ES, the GST collections stood at 3.1% of GDP whereas Corporate Tax collections were 3% of GDP.

This data signifies that GST collections are slightly higher than corporate taxes. Additionally, given the ease in collection of GST for Government (not for GST payers!), in years to come, the Government may lean more on GST for its revenue needs.

4. Cess may continue!

As regards the Compensation Cess, the ES states that 'After the transition period, principal and interest will also be paid from proceeds of the Cess, by extending the Cess beyond the transition period for such period as may be required.'

Aforesaid signifies that Compensation Cess could be extended beyond the originally agreed five- year period. The continuation of Compensation Cess may impact, inter-alia, automobile and beverages industry.

Conclusion

It may also be noted that the ES states that certain Notifications were issued to provide relief to taxpayers due to COVID-19 pandemic by extending various due dates to 31.12.2020.

However, what the ES apparently misses is the fact that even as certain due dates were extended still many critical steps for GST payers such as reduction in GST rates, waiver of interest / penalty, simplification etc. were missing. Further, new compliances like e-invoicing were introduced adding to the compliance burden of GST payers!

Now, let's hope the upcoming Budget 2021 brings the much-needed relief for the GST payers, both on the tax rate front as well as the return rigmarole!

(The Author is supported by CA Sahil Tharani, Asst. Manager, CA Pritam Mahure and Asso. The views expressed are strictly personal.)