Indian Tax Solution
A sharp decline in the Goods and Services Tax (GST) collections in October has prompted the Central Board of Excise and Customs to assess the businesses' use of 'transitional credit' to pay taxes more critically. The tax rate reductions on some 130 items till October too had an impact on the collections falling to just over Rs 83,000 crore in the month, down about Rs 10,000 crore from the average of the previous three months. The board expects a further decline in November revenue as over 200 items, including 178 that were previously under the highest slab of 28%, saw rate cuts in the middle of the month. While transitional credits on pre-GST taxes paid on stocks carried over to the GST regime was estimated at around Rs 65,000 crore, the CBEC is ascertaining whether the claims have been on the higher side. These credits have to be claimed by December, meaning the GST revenue will start having lesser impact of them in the subsequent months. The apparently high transitional claims are even as the government hasn't yet allowed 'TRAN-2' filings, which allows credits on excise paid earlier without supporting documents but subject to a cap of 60% of the tax paid.
"Many big companies are yet to file TRAN-1 returns and government is aware of its liability under TRAN-2 as well. In view of this, the GST revenue stabilisation seems a few months away since one entire cycle of taxes and refunds is not over yet," Rajat Mohan, partner, AMRG & associates said. Official sources said that in many industries, the tax rate cuts have created a situation where the output tax liability is lowered but input taxes are not mitigated. This allows these businesses to meet the tax liability with a higher proportion of credit and lesser payment in cash. One reason for the October collections being lower than in the previous months could be this, the sources added.
Meanwhile, the tax department is also worried over the slow increase in the number of entities that pay taxes on a monthly basis, even as 'eligible taxpayers' registered on the GSTN have risen during the recent months. While the taxpayers eligible to pay taxes - except the composition-scheme units that pay nominal taxes without tax credit- increased from about 60 lakh in July to some 80 lakh in October, the number of units that paid taxes hovered around 58 lakh in August and September and by now, the October figure is a little over 50 lakh. "This perhaps reflects a compliance issue," an official said. The current month will likely see lower revenue compared to October as the impact of rate reductions on over 200 commodities, which came into effect on November 15, will loom large. This is estimated to pull the collections down by nearly Rs 2,000 per month.
"The dip in (October) revenue is about 12% compared to average of the previous three months. This alone wouldn't concern the government but there are various kinds of refunds including to exporters, industries in hilly states and transitional credit that are still to be paid out. A further reduction in November and December GST revenue collection is expected," Abhishek Jain, tax partner at EY said. However, there will be a comforting factor of nearly 15 lakh composition scheme dealers filing returns for October-December quarter, which could shore up the revenue but the impact of outgo in terms of pending refunds on the collection isn't clear. "The steep drop in the taxpayers filing returns would be a matter of concern. The state-wise, industry-wise, taxpayer category-wise patterns would throw some light on the reasons for the same," MS Mani, partner-GST, Deloitte India said.
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