With a big reform such as GST, you need to be flexible: Revenue Secretary

So we had to revise estimate downward, to show a realistic picture, said Revenue Secretary Ajay Bhushan Pandey

The revenue estimation in the interim budget has some peculiar features. Despite a huge revenue shortfall in goods and services tax (GST) collection in its first full year of implementation, the interim budget expects a jump in the coming financial year. On the direct taxes front, a higher-than-expected revenue is expected from companies. While excise revenue is kept unchanged, customs duties are expected to help the government. Revenue Secretary Ajay Bhushan Pandey tells Abhishek Waghmare that it is important to understand the reasons behind these trends. Edited excerpts from the interaction:

The government is expecting a 14 per cent growth in gross tax revenue in 2019-20. But considering the shortfall in GST collection in 2018-19, do you think that the 18 per cent growth GST in 2019-20 is a bit ambitious?

Reducing GST rates for various items had a revenue implication of nearly Rs 90,000 crore. So we had to revise estimate downward, to show a realistic picture. We have done the same thing while giving an estimate for next year. We have a fair idea on the kind of growth visible in some economic sectors. Based on that, we have given revenue projections, which we think are fairly realistic.

In ten months till January, the Central GST collection adds up to Rs 3.8 trillion. Is it possible to collect Rs 1.2 trillion in just two months?

In addition to the regular adjustment of Integrated GST (IGST), some IGST will be provisionally settled. Besides, we would also have some funds remaining in the compensation cess account, some of which will be also reflected in the Centre’s revenue side. Considering all this, RE is achievable.

With the economy growing at 11 per cent nominally, the shortfall in GST looks puzzling. Apart from the series of rate cuts, are there any lacunae in the system that caused it?

The shortfall in RE also has to do with the assumptions made during the previous budget. IGST amounting to Rs 1.6 trillion was there in Centre’s account on March 31 2018, after which we sought legal opinion, and the entire IGST came to the central kitty which was devolved to states later. That was the opinion at that time, based on which, budget estimates for 2018-19 were made.

But after last year’s budget, the GST Council decided that the non-settled IGST will have to be provisionally settled to states with a certain ratio at any point in a financial year. Now if that money (IGST) doesn’t come to the Centre, you will certainly have a different situation.  

Had the situation been the same, RE for 2018-19 would have had been closer to the budget target.

The basic legal presumption was that the unsettled IGST will come to consolidated fund of India first, it will be shown as the revenue of the union government it will then be devolved to states. That system itself has changed, and because of that, the RE of the current year had to be brought down.

Secondly, GST was mere 8-month old when last budget was presented. If you bring so many taxes in 35 states on to one platform in such a big reform, you need to be flexible. And the GST Council has indeed been flexible when it reduced rates.

But the real bottom line is that despite the nominal growth of 11 per cent, states have been guaranteed a revenue growth of 14 per cent.

The interim budget has maintained the revised estimate of IGST at Rs 50,000 crore.

At any point of time, at least you will temporarily have some money on the IGST account. Because we are getting collections on a daily basis, we expect this will be the amount in IGST on March 31 2019, and it will ultimately be settled in the next month (April 2019).

Customs revenue jumped by almost Rs 20,000 crore. Was rise in import duties the reason?

The fluctuations in customs duty collection depends on our trade policies…what is being imported, exported, and what is the exchange rate at that time. But we cannot say increase in customs is on account of rise in import duties. We haven’t increased rates.

Did the fall in rupee vis-a-vis the dollar improved customs revenue?

To some extent yes, that had its impact on pushing up customs revenue.

In budget 2018-19, and in the following months, import duties were increased more than twice…

No, but then, they were only for a temporary period, and we have brought it down later. Further, the contribution of these items in our import basket is not really big…I don’t think that rates justify the higher revenue.

On direct taxes, this newspaper has reported, and even the Comptroller and Auditor General (CAG) had indicated that, in recent years, more refunds are being held back by the tax department. Interest paid on refunds has risen from Rs 6,000 crore in previous years to Rs 10,300 crore in 2016-17. Why is this the case?

We are developing the IT system so that people who are eligible, and there is a definite case that they deserve the refund, we are clearing the refunds. In cases where it requires certain verification and re-verification, in such cases there could be some delay.

But the very fact that there is a provision in the law that the interest has to be paid, it also keeps the department under pressure that refunds should not be withheld.

On one hand, IT system is being upgraded, the decision making system is getting faster, and as a result refunds to the tune of Rs 1.5 trillion have already been given in FY19.

Coming back to GST, bringing real estate under it has been the priority. But what does the revenue department prefer: a low rate without the benefit of input tax credit to the builder, or a slightly higher rate with the availability of ITC?

There is no question of preference. The suggestions had come from the industry as well as real estate regulatory authorities of states. They had suggested that due to this 12% GST rate or 8% in case of affordable housing for under construction flats, people are postponing their decision to buy flats. And that is what it is choking the finances of builders, and real estate developers.

It was a kind of catch-22 situation that the builders were not able to obtain the required funding from flat buyers since the latter were not booking the under construction flat, since they see 12% or 8% GST acts as hindrance.

So the matter to reduce the rate was discussed in several meetings and it was felt that if we make the rate at 5% without ITC and for affordable, 3% without ITC, then it will serve the interests of the revenue department, at the same time, flat buyer will also see a lower tax on property, and also provide the builders with requisite finance or working capital.

It was a win-win situation for all the three. This proposal is now being deliberated by a ministerial panel and it will now make its recommendations.

But won’t a system with input-tax credit help keep a trail on inputs in real estate business which happen in cash at the moment?

Suggestion was that even if it is brought down to 5 per cent without ITC, there was a condition that 80% of the purchase must be done from registered dealers. That will help us in maintaining the cash trail.