Tax base set to expand in wake of GST rollout
GROWING BIG 7.95 million applicants seek GST registration according to latest figures; wider tax base to help government lower taxes, boost welfare spending
The number of registered tax payers under 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 government more room to spend on welfare or cut taxes.
Till mid Friday, 7.95 million applicants had sought GST registration. That is 99.3% of the 8 million tax base under the earlier system that comprised assessees of state value added tax, service tax and central excise duty.
GST Network, 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 Navin Kumar, chairman of GSTN.
“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,” Kumar said in an interview on Friday.
A wider tax base, which will allow the government to lower taxes and boost welfare spending, is one of the benefits policy makers have been hoping for from the GST roll out. India’s tax revenue as a percentage of its gross domestic product 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 Rs 20 lakh a year to get registered, a thresh- old which is higher than the ones that existed earlier for most of the indirect tax payers.
In the earlier system, those with sales above ₹5 lakh a year had to register for paying VAT in most states (a few 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
INDIA’S TAX REVENUE AS A PERCENTAGE OF ITS GROSS DOMESTIC PRODUCT WAS 16.7% IN 2016, LOWER THAN THE 25.4% IN THE US AND 30.3% IN JAPAN
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 possible 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 erstwhile regime, he added.
Out of the 7.95 million entities that have opted for GST registration, 900,000 had not registered for any of the indirect taxes in the previous regime. Many of these new indirect tax payers could also be first-time income tax payers.
“The increase in tax base subsequent to GST roll out should also take into account the broadening of the direct tax base,” said a government official, who asked not to be named.
India’s direct tax base has expanded in the last couple of years, especially after the ban of high-value currency notes in November.
The income tax department added 9.1 million new income tax payers in 2016-17 compared to an average net addition of about 5 million tax payers a year in 2015-16, Mint had reported on 12 May.
“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.