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GST needs fundamental restructuring, says Finance Commission Chairman

GST needs fundamental restructuring, says Finance Commission Chairman

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The 15th Finance Commission’s final recommendations for the period between 2021 and 2026 have been tabled in the Indian parliament.

The share of states in central taxes has been recommended at 41 percent, which is the same as 2020-2021.

The commission has also said that the 2011 census data represents the needs of the states and helps to fairly reward states that have done better demographically.

However, the Finance Commission has observed that a steady increase in cesses and surcharges have had a direct impact on the divisible pool for states because the increased cess collections are not shareable. The commission estimates cesses and surcharges to average 18.4 percent of gross tax revenue between FY22 and FY26 from 13 percent average between FY17 and FY19.

The commission has also recommended that the FRBM Act needs major restructuring and the timeline for defining and achieving debt sustainability should be examined by a high-powered inter-ministerial group. This group can draft the FRBM Act and oversee its implementation.

Healthcare spending has also received attention in the report. The finance commission has recommended that health spending by states should be increased to more than 8 percent of their budget by 2022.

It has also recommended that total public health expenditure should be increased to reach 2.5 percent of GDP by 2025.

To discuss the recommendations, Shereen Bhan spoke to NK Singh, chairman of 15th Finance Commission.

Speaking about Budget 2021 Singh said, “Budget 2021 marks a tectonic mind-set change. We have for once got out of the miasma of uncertainty to embrace the market or to get out of the market, to privatise or not to privatise, to find scope for private capital or to spotter private capital, I think we had remained trapped in this for very long. This Budget recognising for the first time that the issue of the ownership of public sector banks should not be cast in stone, that public sector undertakings which had become unproductive and outlived their utility yielding very poor returns to the sovereign which had invested vast resources on this, required a fundamental rethink.”

Speaking about Goods and Services Tax (GST) he said, “Realisations from the GST by way of revenue and by the consequence also on the GST cess has been less than what was expected and it has impacted the finances both of the union government and the states as well. In our chapter relating to resources we have given number of important suggestions on how to restructure the GST and these have been favourably commented upon by the finance minister herself in her Budget speech that on many issues, the GST administration, the procedures and in terms of the broad structure, we need to go back to the drawing board. The GST certainly requires a very fundamental restructuring and the finance secretary has said that they are quite conscious of this and that the GST council would consider many of the suggestions which have been made on the basis of our priority.”

Source: cnbc-tv-18

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Finance panel wants three-tier GST structure: Report

Finance panel wants three-tier GST structure: Report

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The Fifteenth Finance Commission (FFC) has recommended simplifying the GST structure into three slabs, according to a report in Hindustan Times.

The Finance Commission has suggested a uniform rate of 17 percent, sources told the publication. GST, introduced in July 2017, currently has four rates – 5 percent, 12 percent, 18 percent and 28 percent.

Other suggestions by the panel include a lower merit rate for items of common consumption and a higher rate on luxury and sin goods, the report said.

Moneycontrol could not independently verify the story.

The Finance Commission has forwarded the suggestions to the GST Council, which makes the final decision on the rates, Hindustan Times reports.

Some policymakers are in favour of rationalising the slabs to simplify the GST structure and boost revenue collections, which have recently seen a slump.

GST collection had crossed the Rs 1 lakh crore mark in November 2019 after three months of lower collections.

Finance Minister Nirmala Sitharaman also recently said there was a need to rationalise GST rates.

“Eventually, we will of course have to rationalise (the rates). Do we want so many slabs? Do we want to have just two or three slabs? Original intent was that we have just the three —merit, sin and the standard; just the three rates,” Sitharaman had said.

In another report in The Economic Times, the government is considering allowing companies to clear current GST dues without first clearing past pending payments.

Officials from the Ministry of Corporate Affairs (MCA) and Department of Revenue (DoR) have begun discussing the matter, the report said.

Source: Money-Control.

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GST Compensation
GST compensation to 9 states put at Rs 70,000 Cr

GST compensation to 9 states put at Rs 70,000 Cr

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The Goods and Services Tax compensation requirement of nine major states could be as much as Rs 70,000 crore in fiscal 2020, ratings firm ICRA has estimated.

This would put significant pressure on the central government’s accounts which are already under stress from the cut in corporate tax rate and other stimulus measures.

Considering lower-than-expected GST collections — ICRA estimates this revenue to fall Rs 3.5 lakh crore short at the central level for this fiscal year compared with the July 2019 budget estimate of Rs 24.6 lakh crore — the total shortfall for all states could touch Rs 2.2 lakh crore in FY20.

Apart from this, the timing of the release of GST grants to state governments pose a key risk to the cash flows of the states, considering the size of the amount in question.

“The nine states that we have studied are likely to require a sizeable Rs 60,000-70,000 crore as grants for GST compensation in FY2020, twice as high as the compensation they received in FY2019. The timing of release of such grants by the GoI (Government of India) to the states would critically affect their cash flows and the pattern of fundraising in the rest of this fiscal,” said ICRA’s group head-corporate sector rating, Jayanta Roy.

This further poses a two-part risk for the states. A shortfall in their revenue implies a revenue expenditure side risk on additional outgo towards welfare schemes, drought and flood relief, and salaries. On the other hand, ICRA estimates that states would increase issuances of state development loans to plug the gap, resulting in higher state fiscal deficits.

The nine states that were covered in this study were Karnataka, Kerala, Gujarat, Maharashtra, Punjab, Haryana, Rajasthan, Tamil Nadu and West Bengal. These have budgeted for an aggregate fiscal deficit of Rs 3 lakh crore in their respective FY20 budget estimates.

These figures amount to around 2.5% of their gross state domestic product (GSDP), according to ICRA, which is below the 14th Finance Commission’s threshold state fiscal deficit at 3% of GSDP.

Source: Economic-Times.

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GST Software
Government orders biggest review of GST since its launch

Government orders biggest review of GST since its launch

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Two years after its launch, the government has begun the biggest review of GST – including a possible resetting of rates along with a scrutiny of the slabs-to tone up collections and plug leakages.

The task has been assigned to a 12-member committee of state and central government officials to “augment GST collection and administration”, set up a day before the PMO leads consultations with state chief secretaries on Friday, where it is expected to urge them to push for improved collections.

The terms of reference indicate the panel should suggest systemic changes to prevent misuse, improve voluntary compliance, boost overall compliance monitoring and suggest anti-evasion measures. With inverted duty structure proving to be a source of leakage in sectors like restaurants, sources told TOI that the rates may be reviewed.

The GST review committee can co-opt other state government representatives to look at fitting some of the products in other slabs.

There are several sectors where the problem persists. In case of restaurants, for instance, the withdrawal of tax credit on payment for goods and services such as rent has prompted many players to rework the lease agreement in a way that tax payment is avoided and the rent is lowered.

GST collections have slowed down in recent months and have grown at a shade under 5% during the first half of the current financial year, against the target of 13%. While a part of the slowdown is attributed to the state of the economy, especially the sharp fall in auto sales and floods, officials are also worried over weak enforcement in the states, who have been assured compensation by the Centre in case collections grow at under 14% during the year.

In recent weeks, Opposition-ruled states have attacked the Centre on GST collections and said that tax collections have been hit due to a faulty design and not necessarily due to a slowdown. They have blamed the tax cuts for lower collections, a charge that has been rubbished by the Centre, which has said that states were party to all the “unanimous decisions” taken by the GST Council.

At last month’s meeting of the GST Council, Finance Commission chairman NK Singh had flagged the need to review the slabs, which currently stand at 5%, 12%, 18% and 28%. When GST was launched in July 2017, the idea was to merge the 12% and 18% slabs and reduce the number of items in the top bracket. While there are fewer items facing 28% levy than two years ago, officials have said that given the poor revenue realisation the revenue-neutral rate will be 16-17% if the 12% and 18% brackets are merged, which may be politically difficult since there will be a larger number of items where the tax burden will go up.

States have petitioned the Finance Commission to increase the compensation period by another three years, which many believe makes the system leaky as states are assured of revenue. For instance, often states are accused of not following up on leads that are generated every month through a system of data analytics.

Source: Times-Of-India

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15th Finance Commission to meet advisory council on GST mop-up

15th Finance Commission to meet advisory council on GST mop-up

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Amid muted growth in GST collections threatening to strain the government’s fiscal maths, the 15th Finance Commission will meet here on Friday with its advisory council consisting of leading economists, including Chief Economic Advisor K. Subramanian.

Official sources said that the main item on the meeting agenda is the projection of GST revenues in the coming years and plotting the way forward for centrally-sponsored schemes.

The Advisory Council includes noted economists such as Arvind Virmani, Surjit Bhalla, M. Govinda Rao, Omkar Goswami and Pinaki Chakraborty.

The meeting of the Finance Commission with the panel of 12 economists is being held days ahead of the Commission Chairman N.K. Singh discussing the indirect tax collection trends with the all-powerful GST Council on September 20 in Goa.

“Given the GST collection trend so fa,r many states have urged the Finance Commission to extend the period for GST compensation beyond the initial five years. Further, the economic outlook is not looking very bright. The Finance Commission Chairman would meet the GST Council in this context,” an official said here.

The gross GST collection in August 2019 grew 4.51 per cent year-on-year to Rs 98,202 crore but continued to remain below Rs 1 lakh crore mark reflecting the economic slowdown realities on the ground.

Finance Minister Nirmala Sitharaman had, in July, significantly lowered her projections for GST collections in the Budget for 2019-20, against the Interim Budget presented in February. Accordingly, the Centre expects collections this year to be around Rs 6.63 lakh crore, down 13 per cent against the earlier estimate of Rs 7.6 lakh crore.

The government’s worries have, however, grown over the last few months with the GDP growth in the April-June quarter slowing to a six-year low of 5 per cent. Negative sales in the automobile sector and slowing volume of fast moving consumer goods (FMCG) items have sounded alarm bells for the government

Source: Economic-Times

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15th finance panel stresses on dialogue with GST council

15th finance panel stresses on dialogue with GST council

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Finance Commission Chairman N K Singh Tuesday stressed the need for a dialogue between the commission and Goods and Services Tax (GST) council to address various concerns on the taxation regime.

He said the Commission had requested the Finance Minister, who is the Chairman of the GST council, regarding this, and has received a favorable response.

“One of our areas is how do we engage, how purposeful can the finance commission engage with the GST to be able to bring the concerns to the notice of that constitutional body- that what can be done to improve the outcome of the GST, and what can be done to improve the quality of compliance, also fixation of rate structure,” Singh said.

Speaking to reporters here, he said the mechanism for dialogue between the finance commission and the GST council was an area that deserves greater attention.

The chairman said he had written to the previous finance minister Arun Jaitley about the need for suitable consultative mechanism between the finance commission and GST council.

“..I have reiterated this request to the present Finance minister Nirmala Sitharaman.

I have received a very positive and favorable response and we hope that the commission can have the dialogue with the GST council at an early date to address the concerns,” he said.

The 15th Finance Commission, which is on a visit to Karnataka, Tuesday held discussions with Chief Minister H D Kumaraswamy, his cabinet ministers, and state government officials.

Singh said Karnataka was upfront in pointing out to the commission that in the era prior to the GST their performance on VAT presented very high revenue growth and this had got somewhat halted after the application of GST.

“Along with exemptions and the systemic relentless drive to fix rates, which are not revenue neutral, far from being revenue friendly is an area of worry for Karnataka, indeed the commission believes this is an area of worry for India as a whole,” he said.

During his meeting with the commission, Kumaraswamy highlighted that the base tax rates in the VAT regime in Karnataka were much higher and today on account of reducing the GST rates in several items, the actual tax collection for Karnataka had been adversely affected.

“I urge the Commission to recommend to the Central Government to continue the compensation for another 5 years beyond 2022 or at least protect the compensation level of the year 2022 for an additional 5 years,” he said.

Pointing out that both the Commission and the GST council were constitutional bodies, Singh said, “We have sought the Chairman of the GST council, who is the Finance Minister, to facilitate some dialogue between the two entities.”

Stressing on the need for a tax buoyancy, a member of the finance commission said, while the direct tax buoyancy seemed to be doing well, it was the indirect tax buoyancy “that worries us.”

“Key for that is a dialogue between Finance Commission and the GST council, and try to see how we can fix this mechanism,” he said.

Source: Business-standard.

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Finance commission may not extend GST compensation

Finance commission may not extend GST compensation

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The 15th Finance Commission is unlikely to heed the request of state governments to extend the period for the goods and services tax (GST) compensation beyond the initial five years, holding that tax buoyancy will take care of the current shortfall in revenue in some states.

“As GST is a consumption-based tax, the real problem with states is that the guaranteed compensation will end in two years from now, which covers two out of the five years of my award period beginning 2020-21. Some of the states are worried because they are not getting that degree of growth. The changes in GST have now more or less settled down. I now see growth on a more positive wicket. I don’t believe it is necessary nor would it be appropriate (to extend GST compensation). I expect the growth momentum to take care of it,” said the chairman of the 15th Finance Commission, N.K. Singh.

Loss of revenue to the states on account of implementation of GST shall be payable during the transition period of five years till 2021-22, according to the provisions of the GST (Compensations to States) Act, 2017.

The financial year 2015-16 has been taken as the base year for calculating the compensation amount payable to states and the projected nominal growth rate of revenue subsumed for a state during the transition period is assumed to be 14% per annum. The total compensation payable in any financial year is the difference between the projected revenue for any financial year and the actual revenue collected by the state.

GST Compensation

The 15th Finance Commission is unlikely to heed the request of state governments to extend the period for the goods and services tax (GST) compensation beyond the initial five years, holding that tax buoyancy will take care of the current shortfall in revenue in some states.

“As GST is a consumption-based tax, the real problem with states is that the guaranteed compensation will end in two years from now, which covers two out of the five years of my award period beginning 2020-21. Some of the states are worried because they are not getting that degree of growth. The changes in GST have now more or less settled down. I now see growth on a more positive wicket. I don’t believe it is necessary nor would it be appropriate (to extend GST compensation). I expect the growth momentum to take care of it,” said the chairman of the 15th Finance Commission, N.K. Singh.

Loss of revenue to the states on account of implementation of GST shall be payable during the transition period of five years till 2021-22, according to the provisions of the GST (Compensations to States) Act, 2017.

The financial year 2015-16 has been taken as the base year for calculating the compensation amount payable to states and the projected nominal growth rate of revenue subsumed for a state during the transition period is assumed to be 14% per annum. The total compensation payable in any financial year is the difference between the projected revenue for any financial year and the actual revenue collected by the state.

One of the major reasons for the huge shortfall of revenue for states compared with the national average is the inbuilt structural design of GST, in which the taxes are levied on destination-based principle, according to a study conducted by the GST Council in September 2018. The study had focused on the large gap between the revenues of states and Union Territories such as Punjab, Himachal Pradesh, Uttarakhand, Jammu & Kashmir, Puducherry and Bihar, and the national average.

For states suffering a huge revenue gap, there was substantial contribution to the states’ exchequer from the subsumed taxes such as central sales tax and purchase tax before the implementation of GST.

“Some other reasons for revenue shortfall are natural and structural factors, such as geographical location, size of the economy, endowments of natural resources, smaller taxable base, consumption pattern, and differential tax rates under the value added tax regime,” the report said.

The more important problem is that some states believe GST is in a sense a real subjugation of their fiscal autonomy, Singh said. “Because, earlier, the Finance Commission going to any state would say ‘why don’t you raise your excise revenue’. Now states say, ‘now tell us what to do’. The answer to this is that all states have (willingly) agreed to implement GST,” he added.

Source: Live-Mint.

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15th Finance Commission Asked To Provide Plan For GST Compensation To States

15th Finance Commission Asked To Provide Plan For GST Compensation To States

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The 15th Finance Commission, in its first interaction with the parliamentarians, was on Wednesday asked to come up with a roadmap for compensation of losses to states due to implementation of the Goods and Services Tax (GST).

GST council

The parliamentarians also asked the panel to review the status of implementation of the recommendations of the 14th Finance Commission and have a relook at the processes and methods to consider the backwardness of a state.

“Parliamentarians appreciated the inclusion of Sustainable Development Goals (SDGs), disaster management, climate change, progress made in sanitation, solid waste management and bringing in behavioural change to end open defecation among others,” an official statement said.

The meeting assumes significance as the 15th Finance Commission has to work in a different economic scenario since the Planning Commission has been scrapped and the distinction between plan and non-plan grants has also been done away with.

Also read: Small biz yet to recover from demonetisation, GST: Report

The panel will start consultations with states from April kicking off its state level visits with Arunachal Pradesh.

It plans to finish the state-level visits by the end of the fiscal year.

“Since some states will be having assembly elections, visits will be arranged according to that.

“During state visits, the Commission, apart from meeting state leadership and government officials, will also meet various political parties, local bodies and other bodies,” the statement said.

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Source :  NDTV
15th Finance Commission to assess GST impact on tax revenues, allocate more resources to states, says Arun Jaitley

15th Finance Commission to assess GST impact on tax revenues, allocate more resources to states, says Arun Jaitley

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Arun Jaitley : GST

The Cabinet on Wednesday approved the setting up of the 15th Finance Commission which will assess the tax resources of the nation and suggest a formula for their devolution among states.

The members of the Commission and its terms of reference will be notified in the due course of time, Finance Minister Arun Jaitley said after the Union Cabinet meeting. Its recommendations will have to be in place before April 1, 2020, he said.

“Normally, it takes 2 years for Finance Commission to give its recommendations.”

As per Article 280 of the Constitution, the Commission is required to make recommendations on the distribution of the net proceeds of taxes between the Centre and the states.

The Commission also suggests the principles which should govern the grants in aid of the revenues of the states out of the Consolidated Fund of India. This time it will have to take into account the impact of the Goods and Services Tax, which kicked in from July, on the resources of the central as well state governments.

On who will head the 15th Finance Commission, Jaitley said: “The members of Finance Commission will be appointed very very soon.”

When asked whether the 15th Commission will also allocate more resources to the states, he said: “I think let us not prejudge the situation. India is a Union of states, the Union also has to survive.”

The 14th Finance Commission was set up on January 2, 2013. Its recommendations cover the period from 1 April, 2015 to 31 March, 2020.


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