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Is a GST Council-like federal body for public expenditure a good idea?

Is a GST Council-like federal body for public expenditure a good idea?

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The Economic Advisory Council to the Prime Minister (EAC-PM) has recommended a GST Council-like mechanism for the Centre and states to oversee public expenditure. This is not the first time such a call has been made.

Earlier, former finance minister Arun Jaitley had highlighted the need for such a body. He had made a case for setting up such federal institutions to promote healthcare, rural development and agriculture sectors by optimally utilising resources of the Centre and states.

According to a report in The Indian Express, EAC-PM chairman Bibek Debroy has made a similar request, but in the larger domain of public expenditure.

He stated fiscal consolidation issue as a reason behind the recommendation. This year, the target of the Centre’s fiscal deficit is 3.3 per cent of GDP. The government will have to keep its expenditure within this limit. Fiscal deficit crossed 61 per cent of the target in June.

Jaitley had said that both the Centre and states spend a lot of money on sectors such as agriculture, rural development and healthcare.

As such there is a need for utilising the resources in an optimal manner by enhancing coordination between the centre and state governments for essential developmental activities.

“I think a coordination body on a non-statutory basis like the GST Council, as a federal institution can do that job (coordination),” Jaitley had said.

The GST Council, chaired by the union finance minister, comprises finance ministers of all states.

So far it has held 36 meetings and all the decisions, including rate cuts, have been taken on a consensus basis. This was despite the fact that there is a mechanism for voting in case there is no consensus.

The calls for a GST Council-like body for public expenditure is that not all items of public expenditure are in the Concurrent List. Why will the state governments give up their sovereignty to the Centre on the list which is exclusively their domain?

Of the three issues, highlighted by Jaitley—agriculture, health and education—only the part of the last one including technical education, medical education and universities, is in the concurrent list.

States agreed to the GST Council because there are some benefits for them such as they can also impose service tax, which was not possible before the constitutional amendment for GST.

States and the Centre have already pooled their sovereignty in indirect taxes, what would be left for the former in the economic sense if they lose their power in expenditure as well.

As such, some win-win situation will have to be explored before the idea can be embraced by the states.

If one looks at fiscal consolidation, it is the Centre that has not been able to exercise restraint on expenditure. States are doing their jobs pretty well.

In 2018-19, Centre’s fiscal deficit was 3.4 per cent of GDP, breaching the budget estimates of 3.3 per cent. The deficit had stood at 3.5 per cent in the previous financial year.

Combining it with the fiscal deficits of all states, the general fiscal deficit (of both the Centre and states) was projected to stand at 5.8 per cent of GDP in FY’19 (Budget Estimates), sharply lower than previous year’s 6.4 per cent. In absolute terms, combined fiscal deficit stood at Rs 1,099,797 crore in FY19 as compared to Rs 1,100,425 crore in FY18.

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Source: Business-Standard
GST
Single rate, fewer exemptions in GST key to boosting India’s tax-to-GDP ratio

Single rate, fewer exemptions in GST key to boosting India’s tax-to-GDP ratio

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India may be eyeing further reforms to lift the tax-to-GDP ratio after putting in place the goods and services tax (GST), one of the country’s biggest policy changes ever.

The tax-GDP ratio is expected to cross 12% in FY19, a new high in over a decade, but lower than emerging market peers. This means expanding a tax base that’s been eroded by large exemptions and carveouts. A simpler, non-adversarial tax regime can help in this regard.

“From all accounts, there is likely to be increasing pressure on government expenditure from 2019 onwards as competitive politics will compel enhanced spending on various social and agrarian sector areas,” said Sudhir Kapadia, national tax leader, EY India. “This would mean renewed efforts of broadening the tax base and enhancing revenues.”

One Nation, One Tax
GST created a seamless national market and ensured that consumers pay the same tax for goods and services. The GST Council has been making changes since the July 2017 rollout but deeper surgery may be needed.

An ideal GST means a single rate with negligible exemptions. In India, things are different because of political circumstance. Petroleum products, real estate, and liquor remain out of its purview and there are a plethora of rates. Kerala has been allowed to impose a 1% cess following the 2018 floods. The turnover threshold for goods was raised recently to Rs 40 lakh, but for services, it remains at Rs 20 lakh.

A GST 2.0 would mean moving closer to a single rate structure with fewer exemptions, bringing all sectors within its ambit and a simpler law. Any government will find it politically difficult to tax a Mercedes and salt at the same rate and it may also need to exempt a few items such as the latter altogether. But steps to reduce such divergence would be welcome. “This will require broadening of the tax base by getting petroleum and real estate in its fold, further simplification of tax rates, many legislative interventions and avoiding quick-fix solutions such as selectively restricting the input credit for a particular sector or accommodating state-specific changes, which dilutes the concept of ‘one nation one tax’,” said Pratik Jain, national indirect taxes leader, PwC.

A robust dispute-resolution mechanism and administration will help.

“Inclusion of petroleum products and the entire real estate value chain in GST should figure prominently in the agenda of the new government,” said MS Mani, partner, Deloitte, Haskins & Sells.

Use of the database to generate leads on tax evaders and rewarding honest taxpayers using the GST Compliance Rating tool will also generate more confidence among businesses, Mani said.
Direct taxes
Direct taxes, which saw a decadal high tax-GDP ratio of about 6% in the previous fiscal, need drastic simplification with minimal exemptions for individuals and businesses That would go well with the ambitious plan of the Central Board of Direct Taxes (CBDT) for jurisdiction-free assessment. A task force has been set up to draft a new tax code but a drastic reduction in rates may not be on cards.

“The main agenda for the new government is likely to be a renewed focus on streamlining processes and removing draconian provisions which have inadvertently crept into both the GST and direct tax laws,” said Kapadia of EY, adding that more likely than big-bang reforms would be the easing of processes and ensuring better compliance.

Raising Tax-To-GDP Ratio
The tax-to-GDP ratio for India has inched up slightly in recent years but remains well below the world average. The goods and services tax (GST) and demonetisation have helped but more measures may be needed to reduce evasion.

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Source: Economic Times
Measuring India’s economic health: GST data to be instrumental for correct diagnosis

Measuring India’s economic health: GST data to be instrumental for correct diagnosis

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Measuring India's economic health: GST data to be instrumental for correct diagnosis

TCA Anant retired as the chief statistician of India on February 1, 2018. So far, the government has not named a replacement, though it is searching for a suitable successor. KV Eapen, Secretary, Department of Administrative Reforms and Public Grievances, Ministry of Personnel, Public Grievances and Pensions, has been given the additional charge of the post of Secretary, Ministry for Statistics and Programme Implementation (MoSPI), but a search for a full time chief statistician is still on.

One of TCA Anant’s big achievements during his tenure was the revamp of the methodology for collating data and calculating the Gross Domestic Product (GDP) – which included moving from factor cost to market prices, changing the base year, and finally expanding the number of companies in the sample.

Though the new methodology came for much criticism initially – among other things, the GDP growth calculated by the new method was higher than that when calculated by the old method – it has now been accepted by most people as being closer to global practices.

What he left unfinished though was revamping the other methods that are desperately needed. One, which has been much in discussion, is jobs data – India still does not have a reliable and quick method of calculating the number of jobs being created or the number of people unemployed in the country. The Niti Aayog has made some recommendations for revamping jobs data, and that has now been put up on the labour ministry site for comments from the public.

The other big one, which does not get too much attention, is the creation of an Index of Services Production (IIS), which will give a clearer picture of the country’s economic health than the current Index of Industrial Production (IIP).

MoSPI had initiated some basic work – including the development of a methodology to measure service production for railways, airlines and postal services. But it has not progressed beyond that. And yet, developing an Index of Services Production (IIS) is crucial because services account for over 53 per cent of the Indian economy today compared to industry (which includes manufacturing, mining and others) which accounts for roughly 29 per cent (Agriculture and allied accounts for the remaining).

IIP, which has been a mainstay of tracking the health of the Indian economy only tracks manufacturing, mining and electricity. It does not include almost any services. And yet, services not only comprises a bigger part of the economy in the country today, it is also the sector which is growing faster than both manufacturing and industry.

So why has there been a delay in developing the ISP? One reason is that almost all countries find the job of measurement of services much more difficult than measuring production. Despite that though, much progress has been made by developed countries in calculating service growth on a regular basis. Sweden, UK, South Korea and the US started on this journey well over a decade ago. The statistics office of the European Union member states (Eurostat) also requires measurement of turnover data for a wide variety of services on a regular basis. India, despite much of its growth in recent years being powered by services, has been a bit of a laggard in this matter largely because measuring service growth has been a much more difficult task than measuring production growth. So far, the only indicator of service health on a regular basis is the purchasing managers index (PMI) on services, which serves as a proxy for sentiment in the services sector.

But now, with the implementation of the Goods and Services Tax (GST), which not only brings most services under an unified tax net but also requires regular filing of invoices by all companies, reliable data on services should no longer be a problem. Indeed, GST should give a huge fillip to creating a reliable and robust ISP, which will be far better indicator of economic growth than the IIP. (And the method of measuring IIP and also GDP can get a big boost from GST data).

It would be good if the government, while choosing TCA Anant’s successor, also gives him a brief on creating a robust methodology for ISP using GST data. It would go a long way in tracking the economic health of the country more rapidly than is being done now.

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Source :  Business Today
Low GST return numbers points to non-compliance

Low GST return numbers points to non-compliance

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100 days of GST

Despite all earlier claims of the government that the GST would force taxpayers to be more compliant, the number of returns filed in the first seven months since the launch of GST belies this claim.

The number of returns filed each month has not crossed 70 lakh though the number of tax payers registered with the GSTN has crossed one crore (64 lakh earlier indirect taxpayers who migrated to GST and 38 lakh new registrants). Out of over one crore registered taxpayers, around 18 lakh are under composition scheme, who have to file quarterly returns.

According to figures quoted by GST Network’s CEO Prakash Kumar, 63 lakh returns were filed in July, 67 lakh in August and 69 lakh in September. From there ownwards, the number of return filed has started coming down – 65 lakh in October, 64 lakh in November and 63 lakh in December. Final numbers for January are awaited.

Why are the rest of 15-20 lakh registered taxpayers not filing GST returns? Experts cite many reasons for the gap in number of registrants and filers.

Also read: GST: What happens if person files return but doesn’t make payment of taxes?

“Many taxpayers who migrated from the older systems to the GST regime may not have any business at all (even earlier), and hence they do not file returns,” says Prateek Jain, leader, indirect tax, PwC. However, he admits that the number of non-filers is too big to be accounted for by this reason, and he says that government would have to see the real reasons for this.

M S Mani, senior director, indirect taxes, Deloitte India, says, “Under GST there is a concept of nil return where even if there are no sales in a month, the registered dealer has to file returns. Quite possibly, many dealers and businesses who think that they may not need to file return if they have made no sales.”

And the third reason could be, say experts, the habit of some taxpayers to file late returns. Mani of Deloitte says that there are some dealers and traders who are continuously on wait and watch mode when it comes to filing returns. “In GST there is no concept of revised returns, returns once filed is filed for good. So, these traders would be thinking even if they delay it by a couple of month all they have to do is pay the interest and a fine of Rs 50 a day, a price they are ready to bear,” he explains.

The GST Council, the governing body of GST, has also relaxed the return filing rules, reduced the late penalty from Rs 100 a day to Rs 50 a day (Rs 20 for nil return), and extended the deadlines several times, in the process diluting the seriousness attached with the GST compliance.

This also partly explains the continuous fall in the number of returns filed each month.

Rajat Mohan, partner, AMRG & Associates Chartered Accountants firm, says that in the early couple of months there was fear among registered dealers and businesses that if they do not file returns on time, they may not be allowed to file returns. However, after many extension that fear among businesses have come down.

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Source :  Business Today
India GDP growth to re-accelerate as GST impact fades: Morgan Stanley

India GDP growth to re-accelerate as GST impact fades: Morgan Stanley

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“Indeed, we remain skeptical that the GDP statistics are fully reflecting the underlying growth trends in the economy,” Morgan Stanley said in a research note. It further said that a number of high-frequency growth indicators are indicating that end demand is holding up well and is running counter to the slowdown exhibited in the national accounts.

GST impact

Economic activity in the country lost some pace amid GST related disruptions but underlying growth momentum remains strong and the country may clock 6.7 per cent growth this fiscal, says a Morgan Stanley report.

India’s economic growth slipped to a three-year low of 5.7 per cent in April-June, underscoring the disruptions caused by uncertainty related to the GST rollout amid the slowdown in manufacturing activities. Commenting on the GDP numbers, Morgan Stanley said, “We are inclined not to read this as a sign of the general slowdown in aggregate demand”.

“Indeed, we remain skeptical that the GDP statistics are fully reflecting the underlying growth trends in the economy,” Morgan Stanley said in a research note. It further said that a number of high-frequency growth indicators are indicating that end demand is holding up well and is running counter to the slowdown exhibited in the national accounts.

However, on account of the weak GDP print in June 2017 quarter, Morgan Stanley has made some mark-to-market adjustments to its full year GDP growth estimates.


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“We believe that June 2017 likely marked the trough in growth in this cycle and we expect GDP growth to accelerate by almost 200 bps to 7.5 per cent year-on-year in March 2018 quarter,” it said.

On a calendar year basis, Morgan Stanley now project growth of 6.4 per cent and 7.4 per cent in 2017 and 2018, respectively, as against 7.6 per cent and 8.0 per cent previously. The revised new financial 2018 and fiscal 2019 growth estimates are at 6.7 per cent and 7.5 per cent, respectively.

According to Morgan Stanley, currency replacement programme and GST had led to a deceleration in growth momentum. “However, considering that these events are already in the rear view mirror, we expect the underlying economic growth momentum to reassert themselves, leading to a re-acceleration in growth,” it said.

“In our view, India is moving on to the next phase of the business cycle of productive growth – a phase marked by further improvement in growth while macro stability remains in check. This will also set the stage for a sustained growth cycle,” it added.


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Source: Money Control
GST to help India achieve 9% growth rate: Amitabh Kant CEO Niti Aayog

GST to help India achieve 9% growth rate: Amitabh Kant CEO Niti Aayog

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Amitabh Kant Niti aayog Chairman CEO

The Goods and Services Tax (GST), to be rolled out next month as the biggest tax reform since independence, will help India achieve 9 per cent growth rate, NITI Aayog CEO Amitabh Kant said on Tuesday.

He said GST will simplify India’s taxation system and help deal with tax evasion.

“GST is India’s biggest tax reform since 1947…GST will help India in achieving 9 per cent growth rate,” Kant said at an event here.

Noting that the implementation of GST is a dream of Prime Minister Narendra Modi, the NITI Aayog CEO said it will bring a big revolution in India’s taxation structure.

Several experts have also said that GST is estimated to boost GDP by 1-2 per cent and bring down inflation by 2 per cent over the long term.

Kant’s comments come against the backdrop of India losing the fastest growing economy tag to China for the March quarter with the GDP growth slipping to 6.1 per cent. China recorded a growth rate of 6.9 per cent during the January-March quarter.

However, on an annual basis, India grew by 7.1 per cent in 2016-17.

Prime Minister Narendra Modi yesterday reviewed the preparedness for the new indirect tax regime, slated to be rolled out from July 1.

The meeting was attended by Finance Minister Arun Jaitley, Revenue Secretary Hasmukh Adhia and senior officers from the Central Board of Excise and Customs (CBEC).

This was the first review by the PM after the GST Council finalised the rates, and the second since May 2.

The GST Council, chaired by Jaitley and comprising his state counterparts, has already finalised tax rates on almost all goods and services. It will meet again on June 11 to review some of the rates and discuss other pending issues.

All goods and services have been put in slabs of 5, 12, 18 and 28 per cent, with the exception of gold and precious metals, which will attract 3 per cent GST, and rough diamond at 0.25 per cent GST.

Source : PTI

 

Focus Should Be On GST’s Relentless Implementation: Crisil

Focus Should Be On GST’s Relentless Implementation: Crisil

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D.K. Joshi

The government should focus on relentless implementation of the Goods and Services Tax (GST) because in most cases, implementation of the indirect tax remains a challenge, research firm Crisil’s Chief Economist D.K. Joshi said on Tuesday.

“Goods and Services Tax (GST) crossed all the legislative hurdles and what needs to be looked at is implementation, not only from viewpoint of preparedness but also from the point of view of some disruption that it can cause in the short run in terms of small, medium enterprises…. there are lots of gains to be reaped from GST. Focus should be on relentless implementation of GST.

“In most cases, implementation still shows as a major challenge…it will determine India’s competitiveness,” Joshi told BTVi in an interview.

In a recent report on the performance of the Narendra Modi government in the last three years, the research firm said policy prudence and some fortuitous tailwinds have meant India’s macroeconomic fundamentals are looking much better.

“The decks are now clear for the implementation of the GST, the most fundamental and far-reaching indirect tax reform in decades. It’s not optimal, but let the best not be the enemy of the good. Even with its imperfections, it could usher in significant benefits, especially through a quantum leap in transaction trails and logistical efficiencies,” the report said.

Joshi also said India stands out from a global context. Over the past three years, the quality of growth has improved as it is backed by sound monetary and fiscal policies and moderate reforms.

“There has not been a sharp recovery. Even for GDP growth, if you take last three year’s number, it would be around 7.3-7.4 per cent and if you take the average of last 13 years, it is around 7.8 per cent. It is still below the trend. The reason why it is below the trend is that the government has not used measures to boost it in the short term,” he said.

He said the government maintained the monetary and fiscal prudence that means limited upside to the growth in the short run. The GDP is gradually inching up but it is not as fast as it used to grow earlier.

He also said commodities and oil prices have been reasonably low in the last three years that helped.

Joshi pointed out this has put the India’s macro data in good shape and that is getting reflected in the inflow of capital. The underlying trend in the foreign direct investment which is share of FDI over time has been rising.

He also reminded the economy has challenges with increasing non-performing assets in the banking industry, falling investment-GDP ratio.

Source: http://profit.ndtv.com/news/economy/article-focus-should-be-on-gsts-relentless-implementation-crisil-1697572