How GST and demonetisation impacted govt finances -Tadit Kundu
Tax collections from goods and services tax (GST) have been underwhelming, and the government is set to miss this year’s fiscal deficit target
Mumbai: Widening the tax base and collecting more taxes has been a priority for the current government at the centre. This government’s two major economic disruptions—the introduction of goods and services tax (GST) and demonetisation—were justified in the name of raising tax compliance among other things. However, these moves have not exactly turned out as planned and the government is set to miss its fiscal deficit target for 2018-19.
The Economic Survey released by the finance ministry earlier this year had lauded GST for widening the indirect tax base. The number of indirect tax payers rose by 50% in the first six months of GST implementation, estimated the survey, partly attributable to many small enterprises voluntarily choosing to be part of GST in order to avail input tax credits.
However, even with the wider base, GST collections have been underwhelming. Centre’s total indirect tax collections in the post-GST era shows a marked decline. Indirect tax collections (accruing to the centre) in April to September 2018 grew by only 1.8% from a year earlier, much slower than the 5.6% growth seen in 2017-18 full year and even lower than above 20% growth witnessed in the previous two years.
Prior to GST rollout in July 2017, the centre’s indirect taxes mainly consisted of customs duties, excise duties and service tax, almost in equal proportion. Now, more than 60% of centre’s indirect tax revenue comes from GST.
While indirect tax collections have lagged, direct tax collections have been robust. Evidently, the demonetisation shock in November 2016 did lead to an increase in income tax collections—both from individuals and firms.
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