A rebound in goods and services tax (GST) revenues in December, reversing a decline in the previous two months, is good news. Collections rose by 7.3% in December compared to November last year. It is a signal that the transition glitches are steadily getting resolved, leading to more stability in the new tax system. A sustained rise would help yield a bounty from GST in the medium term.
More than half — 56.30 lakh — of the one crore-odd registered taxpayers filed returns in December. Registered dealers are required to file a self-declaration every month, giving details of outward and inward supplies. Another 17 lakh-odd dealers who have opted for the so-called composition scheme have to file quarterly returns. Their deadline for filing returns for the July-September quarter fell in December, adding to the collections, albeit marginally, due to the nominal tax rate.Collections from the scheme will increase in January as returns for the October to December quarter were due this month. But this month, the GST Council also cut tax rates in 80-odd goods and services.
While government does not expect the rate cut to dent revenue collections, the full impact will be seen in the January number. But lower rates will also lead to better compliance and boost revenues. The council should swiftly bring real estate under the GST regime, which creates multiple audit trails to curb evasion that is rampant in the sector. The case to bring the petroleum sector under the GST is compelling. It will ensure that input tax credit is available through the chain, and bring down costs. The multiple audit trails that get generated with GST will also help the government tap into untaxed income.
The government must ensure that the e-way bill does not lead to inspector raj. Filing of returns and invoice matching should become simpler. Greater deployment of the reverse-charge mechanism, on all large buyers, so that they collect the tax on their input purchases, leaving small suppliers only with the job of filing returns, would make things simpler. Expect GST implementation to evolve for some more time.