GST collections for December have been more than Rs 1 lakh crore, an increase of 9%, cementing the reversal of a declining trend that began in November, when GST collections grew 6%.
The 9% growth comes from 16% growth from domestic transactions, which is robust. Sluggish economic activity pulled down imports, resulting in poor collections from the Integrated GST that is levied on imports, depressing overall growth to 9%. The asymmetry between collections from domestic transactions and from imports suggests that better administration of the tax is responsible for the rise in collections, rather than revival in economic activity, although the Purchasing Managers’ Index for December has, indeed, gone up.
The scope for improving administration of the tax somehow seems to not receive the attention it deserves. A group of officials working on improving GST collections is reportedly veering to the view that rates need to go up on items that are currently either exempt or slotted in the 5% slab. While their thinking that shifts shouldbe gradual is welcome, the suggestion suffers from the drawback that raising collections is seen to be a function of rates, rather than of better implementation of the tax. Making reverse charge the norm for all input purchases by firms that are no longer small — the classification Micro, Small and Medium Enterprises (MSME) is a hurdle to rational thinking on the subject — would widen the base of the tax and boost collections.
It would also do away with the added costs of financing tax payments by taking out loans that small firms have to bear today.
Ever-greater attention has to be paid to tracking the movement of bulk goods that form the basis of manufacturing, whether metals or petrochemicals, to track the chain of value addition and plug tax leakage.