‘Compensation has become the biggest issue in GST’
Raising taxes or tweaking rates will not be possible for at least a year to overcome the revenue shortfall this year as the country struggles with the Covid-19 pandemic, says Bihar Deputy Chief Minister
SUSHIL KUMAR MODI. He tells Dilasha Seth that the proposed reforms like simplified returns form and e-invoicing facility, among others, will be difficult to push through in the fourth year. Edited excerpts:
How do you summarise the first three years of GST?
The first two years of GST went well and the revenue collections were very good despite technical and teething problems in the initial days. People had by and large accepted GST. The average revenue collection in the first year was ~82,295 crore, which increased to ~98,114 crore in 2018-19, growth of about 19.22 per cent over 2017-18. Everything was going on very well. The GST Council took cognizance of issues that erupted at that time. It didn’t turn out to be inflationary either as was the expectation. There were a number of changes and amendments that were made, so by and large people accepted the GST regime.
Did you anticipate that the revenue shortfall will be difficult to manage just three years down the road?
The problem in revenue started in the third year. Due to economic slowdown, the revenue started depleting. We were of the opinion that slowly it will
improve and we will be able to cover up the gap in the initial months of the third year. During April to November also, the average monthly collection was in excess of ~1 trillion, with growth of 3.75 per cent compared to corresponding period of last year. But as the pandemic hit, it has derailed everything.
Did states feel at any point that the promised compensation mechanism will be disrupted?
In the third year, it was the first time that the GST Council felt that we are not able to compensate the states and that has become the biggest issue. As the gap in collections started increasing and compensation requirement increased, that became the biggest issue in the third year. In the fourth year, the revenue shortfall initiated by economic slowdown has been worsened by the pandemic. Now, the issue is how to cope up with the revenue losses.
Will reforms like the proposed simplified returns and e-invoicing see light of the day this year?
It is very difficult now to go for reform in the GST. We were thinking of bringing a new simplified returns this year, under which there is a provision for matching of credit. Besides, einvoicing facility was to also go on floors. But it seems unlikely now. All other reforms initiatives which could increase our tax revenue have become very difficult to implement in the fourth year. The biggest challenge is with remains with respect to compensation.