Canada demonstrated to the world that subnational Value Added Tax (VAT) in addition to the federal VAT is feasible. It introduced the tax in 1991 with autonomy given to the provinces to determine rates. The tax is still evolving, and even as recently as in 2013, British Columbia, one of the provinces, decided to come out of the VAT system after a referendum. In the European Union, joining the VAT system is a condition for accession. Every country determines its rate structure and administration, and inter-country transactions are zero-rated. In contrast, in India, states gave up their fiscal autonomy to determine rates in favour of a harmonised GST with uniform rates across the country.
To ensure a seamless tax credit mechanism, the IGST was introduced, which required a strong technology platform to track taxes to the final destination state. A strong technology platform was also a precondition for the plan of the 100% marching of invoices to verify input tax credit. It was also hoped that the tax would facilitate exports through quick GST refunds, weed out distortions by removing cascading and improve tax compliance to make it a “money machine”.
However, three years after the implementation, not many are celebrating. Both, the centre and states, are complaining about low revenue productivity. Exporters are complaining about the delay in refunds. Taxpayers complain about high compliance burden, and the central and state governments are unhappy with the shortfall in revenues.
In 2019-20, the actual revenue collection from Central GST was 24% lower than the budget estimate and 18% lower than the revised estimate. The aggregate revenue collection of the centre and states from the GST (excluding compensation cess) in the first quarter of this year was 41% lower than revenue collected during the corresponding period last year. In June, collections rose sharply to Rs90,917cr after a dismal collection of Rs32,294cr in April and Rs62,009cr in May 2020, mainly due to the lockdown being lifted and relaxed time schedule allowed by the government for filing GST returns for March and April.
Published as received
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