Recovery in GST receipts sustainable: finance secy5 min read . Updated: 02 Nov 2020, 07:35 AM IST
- E-way bill generation in October is 21% higher than what was generated in October 2019 and 11% higher than what was generated in September this year
- The increased activity will get reflected in the collection in November
The recovery in goods and services tax (GST) receipts is sustainable, and the government is evaluating demands from various quarters for further steps to boost growth, finance secretary Ajay Bhushan Pandey said in an interview. Edited excerpts:
Is the recovery trend in GST revenue receipts and the overall economy sustainable?
GST collection in October has not only touched ₹1.05 trillion; it has grown by more than 10% from a year ago. In September, too, the ₹95,480 crore GST receipts was a 4% improvement over the corresponding month a year ago. The October collection refers to the sale or purchase done in September. We also have early indicators of the situation in October. E-way bill generation in October is 21% higher than what was generated in October 2019 and 11% higher than what was generated in September this year. The increased activity will get reflected in the collection in November. The economy is recovering. In certain areas, it is in the positive zone. The reason for the economic recovery and the improved collection is the series of interventions made by the government during the pandemic. Each time, we studied the situation, identified sectors of the economy and segment of the population needing help, and we kept on taking steps. Besides, we took measures to increase the efficiency of GST systems. Data analytics tools are being used to check tax evasion and frauds. We have rolled out Aadhaar use for GST registration. We have initiated measures to ensure that input tax credit is passed on to buyers only if the sellers have actually paid GST. Policy measures, the stimulus package and other interventions are helping.
Finance minister Nirmala Sitharaman has said the door is not closed on another set of stimulus measures. What is the progress on this?
The philosophy and approach of the government are to continuously monitor the situation. In April, when there was the lockdown, we identified who needed help most and what was needed. It was the vulnerable sections of society, people dependent on daily wages, MSMEs and other sections of our society. The government gave cash assistance to more than 200 million Jan Dhan Account holders and farmers. Eight hundred million people were given free rations. MSMEs also needed assistance. Relaxations in loan repayment and working capital assistance of ₹3 trillion were given to MSMEs in the form of additional working capital loans. For that, the guarantee of the government was given. GST and income tax refund of ₹2 trillion was also given. One recent step is to grant leave travel allowance without travelling and income tax concession on it, which was also extended to private sector. All these are being taken continuously. Even now, we are in discussions with stakeholders. We have received suggestions from industry, trade bodies and ministries on whether something more is needed. As the finance minister has said, we are continuously monitoring the situation, and whatever is needed for the betterment of the economy, those things will be done.
Are you prepared for another difficult year in FY22 given the spillover effects of this year?
In some areas, there will be some spillover effects. The Spanish flu had also lingered on for many months. Now also, many people are talking about a second wave of covid globally. This effect will linger for some more time. We have to be prepared for that. The industries that suffered a loss will take some time to recover. The revenue, particularly; income tax, if you are showing a loss this year, naturally, you will not pay any income tax. They also adjust this year’s losses against the profits that they make next year. So, income tax receipts in the next year may also get impacted. You have to be conscious of these factors when we make plans for the next years.
States like Kerala, which are protesting against the borrowing options offered to them for meeting GST revenue shortfall, have indicated their willingness for a negotiated settlement. Has the Centre reached out to them?
The government of India’s stand is that states are entitled to full GST compensation—the guaranteed 14% annual growth (from FY16 base year). It is also written in the GST compensation law that compensation has to be paid from the compensation fund. This fund is funded by the compensation cess. Because of the pandemic and its impact on the economy, the GST collection, including the cess proceeds, have been affected. The GST Council has decided to extend the cess collection beyond 2022. Whatever is the shortfall, the compensation will get paid beyond June 2022. Then the question arose if a part of this shortfall can be met by borrowing. Borrowing is a matter dealt under by Article 293 of the Constitution. Accordingly, certain options were worked out, incorporating suggestions from states. Finally, 22 states and two Union territories agreed to borrow through a special window the Centre has offered, under which the central government will borrow and pass the loan back-to-back to states. The entire loan will be serviced by the compensation cess, which will get collected during the extended period. The first tranche of loan has been arranged under this mechanism. The interest rate is close to 5%, and it is a win-win for everyone—for the states, the centre and the people as the interest rate is low and the burden of cess on them will be lesser. A few states have not yet joined. The finance minister has written to their chief ministers and has requested them to join the scheme so that money can be given to them. We continue to engage with them. We hope that they would join the scheme as early as possible.
If the Centre can borrow up to ₹1.1 trillion and give to states, why not borrow the entire shortfall amount and pass on to states as the difference is not too huge?
I do not think we can get into that debate. Once GST compensation is payable, how much to borrow and when to borrow, is governed by Article 293 of the Constitution. The very fact that there is an Article 293 in the Constitution means that any borrowing has to be done as per certain fiscal norms and the details get worked out by the departments of expenditure and economic affairs in consultation with the states. This is what is stipulated under Article 293 of the Constitution.