Tax base poised to expand in wake of GST rollout
GROWING BIG Wider tax base likely to give government more elbow room to lower taxes, boost welfare spending
The number of registered taxpayers under the goods and services tax (GST) is set to exceed those in the previous indirect tax regime as early as this week, a development that is likely to give the Centre more room to spend on welfare or cut taxes.
As of mid-Friday, 7.95 million applicants had sought GST registration. That is 99.3% of the 8 million tax base under the earlier system comprising assessees of state value-added tax (VAT), service tax and central excise duty.
GST Network (GSTN), the firm that grants registration and processes returns, is getting as many as 50,000 applications a day under a new registration window that opened on 25 June and will remain open till 22 September, according to GSTN chairman Navin Kumar. “It is possible we may surpass the 80 lakh (8 million) level within a working day or two. We will know in a month, by how much we have exceeded,” he said in an interview on Friday.
A wider tax base is one of the benefits policymakers have been hoping for from the GST rollout. India’s tax revenue as a share of GDP was 16.7% in 2016, lower than the 25.4% in the US and 30.3% in Japan.
The surge in GST registrations is despite the fact that rules exempt businesses that have annual sales of up to ₹20 lakh a year to get registered, a threshold higher than the ones that existed earlier for most indirect taxpayers. Earlier, those with sales above ₹5 lakh a year had to register for paying VAT in most states (a few states had a ₹10 lakh threshold). Also, service providers with sales exceeding ₹10 lakh had to register for service tax.
One of the reasons contributing to a wider tax base could be voluntary registration by small dealers who would not like to lose business ties with larger companies that prefer to deal with registered vendors in the GST regime, said R Muralidharan, senior director, Deloitte India. Another reason for increased GST registration may be the requirement for service providers to register in every state from where they render a service, unlike the previous regime, he added.
Of the 7.95 million entities that opted for GST registration, 900,000 had not registered for any indirect tax previously. Many of these new indirect taxpayers may also be first-time income-tax payers. “The increase in tax base subsequent to GST rollout should also take into account the broadening of the direct tax base,” a government official said, declining to be named.
“Indications are that GST is set to widen the tax base and increase government’s tax revenue receipts due to increased compliance. Entities that are out of the supply chain have incentives to come under GST,” said Bipin Sapra, partner, tax and regulatory services, EY.