States may want to study GST revenue flow: Hasmukh Adhia

We are yet to figure a trend of income coming from the items already subsumed under GST, said Hasmukh Adhia

Hasmukh Adhia, the Union revenue secretary, talks to Dilasha Seth & Indivjal Dhasmana about implementing the various facets of the goods and services tax (GST). Edited excerpts:

The ministry of petroleum wants to include oil under GST. Will this come for fresh discussion in the GST Council anytime soon?

Petroleum is a big agenda. We are yet to figure a trend of income coming from the items already subsumed under GST. It appears the states might like to study the current revenue flow under GST before subsuming more items, at this point. 

GST yielded over Rs 90,000 crore each in the first two months. Will September see higher inflow due to quarterly filing of composition dealers?

In the first two months, major income came in the form of Integrated GST. Initially, you have to pay IGST, which then moves around in the form of credit to be utilised for transactions. So, now, IGST might taper or even come down. 

Earlier, there was no tax on godown transfers, but now if you transfer goods to your own godown in another state, you need to pay IGST. Similarly in the case of import, IGST was paid but we’ve now said that it will be exempt. In import alone, around Rs 21,000 crore in July and Rs 23,000 crore in August came in IGST. IGST is interim credit and cannot be allocated to Centre and state; it will depend on where there will be consumption. People will not pay fresh IGST but use the credit. So, the number might come down.

The compensation requirement for the states in the first two months turned out to be much less than the cess collection. About Rs 8,000 crore was distributed to states as against a collection of around Rs 15,000 crore. Is it not a good sign for revenue?

It is very difficult to judge that, as July was not a normal month. We took into account the Value Added Tax (VAT) income of states for July and GST income for August. The VAT income was extraordinarily high. A lot of sale took place in June, and states got their income of VAT in July after GST was implemented. That income was far higher than August income and that’s why the combined Rs 8,000 crore compensation amount was required for two months. Otherwise, in the normal course, monthly compensation requirement will be more. 

Could you throw some light on the revenue and compensation requirements of states? Did all states require compensation? Which state needed the highest amount?

All states barring one got compensation. It will be difficult to assess the revenue trend for Centre and states at this point, as it is the transition period. More, the compliance rate is also less than perfect. There is self-assessment initially. Once we start comparing GSTR-1,2 and 3, we will figure the number of missing vouchers. The benefit of GST will start coming in only after there is better plugging of loopholes. At this point, we are accepting whatever people are declaring and filing as taxes. That is no trend. We will have to get a clear trend after GST stabilises.

Index of Industrial Production growth for August rebounded to a nine-month high of 4.2 per cent. Does this suggest GST hasn’t dampened industrial activity or the larger economy?

Why will GST dampen the economic spirit? Right from the beginning, there has been an expectation that GST will improve economic growth by two percentage points. That’s because we are streamlining the indirect tax system and correct the cascading of taxes. The general expectation is that GST will lift the economy once these transition glitches are rectified. These glitches happen in any new system. Economic growth will eventually improve.

The compliance rate is low, with only about 70 per cent of entities filing GSTR-1. Why?

Compliance is low but due to the lack of awareness and understanding that you have to file  return if you are registered. We have to disseminate this information to people. So, state and central officers have to do a lot of work to reach every dealer. We have started that exercise. There will be some gap initially. Once people get used to the new system, the compliance rate will improve. 

Are you also conducting a compliance survey?

Yes, to understand why people are not filing returns and what difficulties they are facing. The result of the survey will be available for our use after Diwali. 

Are you directly interacting with business?

As on today, there are 50 workshops being organised across the country for dissemination of information and understanding their concerns, and to address any queries that they have. We will advertise about it.

Aren’t there too frequent changes in GST? Could that be keeping the compliance rate low?

All the changes are for the benefit of people. There is no option. One way could be to freeze the rates and rules for 12 months and do changes after that but that will be too late. The best way is to do real-time changes, what we are doing.  We are addressing issues faced by taxpayers on a timely basis. Beside, the changes in rates will now on be not ad hoc but based on the approach paper and the report of the fitment committee.

Any profiteering complaints?

Not many so far. So, too, with the states’ screening committees. Even inflation data is suggesting there isn’t much price rise. The only thing is if the benefit has been passed on to consumers or not. In the case of restaurants, some complaints have come.