GST shows signs of realising promise – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-editorial/gst-shows-signs-of-realising-promise/articleshow/82414400.cmsSynopsis

For the economy as a whole, gross value added is equal to gross profits plus wages and salaries. The same holds at the firm level.

The spurt in goods and services tax (GST) collections in March reflects both economic recovery and increasing formalisation and tax compliance of ever-larger swathes of the economy. Thanks to GST, accounts of businesses are getting reported and more workers are enrolling with the Employees Provident Fund. The potential to increase revenue can only go up further with greater formalisation of the economy and broadening of the tax base. GST revenues for March, collected in April, touched a record high of ₹1,41,384 crore, 14% higher than the previous month.

The pandemic induced lockdown led to an almost 24% economic contraction in the first quarter. The pace of decline came down to 7.5% in the July-September quarter, but GST collections were dented. The economy grew by a modest 0.4% in the third quarter. However, GST revenue has stayed above ₹ 1 lakh crore for the seventh consecutive month. About 1.28 crore taxpayers are registered under GST as on May 2, 2021 against 1.12 crore in 2018. The pace of registration of new taxpayers under GST must rise. This is feasible. For the economy as a whole, gross value added is equal to gross profits plus wages and salaries. The same holds at the firm level. So, tracing the transaction chain from the supply of bulk raw materials to those who use them as inputs down the value chain will help stem tax evasion.

Establishing a link between GST database and direct taxes leads to superior collections. Deploying data analytics to identify bogus input tax credit claims and plugging leakages by pursuing audit trails in the income and production chain make eminent sense. And once large swathes of the economy become formal, GST revenues will surge. Rationalised rates and universal coverage would help.

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