Finance Minister Arun Jaitley has said he expects GST to boost the amount of tax collected by both central and state governments and increase the overall tax to GDP ratio.
However, GST is supposed to take effect on July 1, 2017 – well into the new fiscal year – which has complicated the government’s attempts to tabulate indirect tax revenues for the coming year.
The GST Council has yet to finalize many facets of the new tax structure, such as exemptions and applicable rates. The government has acknowledged some short-term instability is likely and that an initial reduction in indirect tax revenues is possible after July 1st.
exchequer in FY17.
According to the GST news today, the government might recalculate its indirect tax revenue predictions once the new structure comes into effect. Why?
Since GST is being introduced on July 1st, the government’s ledgers will reflect tax collected by the centre and states under two different tax structures, which makes for messy accounting. There is also uncertainty about how revenue sharing and differential rates across goods will impact receipts.
Tax rates for goods and services will fall into four brackets (5%, 12%, 18% and 28%), but these have not been applied across goods. Analysts expect services to be taxed at the same rate (currently services are taxed at 15%, which includes Swachh Bharat Cess and Krishi Kalyan Cess), with some exceptions such as education and healthcare.
Both state and centre will split indirect tax revenues in half. Because many state-level taxes, such as value-added tax (VAT) and entertainment tax will now be rolled into GST, states expect to lose revenue. The government has agreed to compensate them for the first five years using a cess over and above luxury or “sin” taxes, which further complicates their projections.
In the most recent budget, the government estimated indirect tax revenue for FY18 – 9.27 lakh crore – using extrapolation and assumed a 9% growth rate for indirect tax collection. This figure may be adjusted once there is clarity on final rates.
How will the government reassess its math once GST is in full force?
According to Revenue Secretary Hasmukh Adhia, the government can amend or remove budgetary heads once the full impact of GST is realized.
Once the GST Council agrees on rates for all goods and decides on exemptions, the government will have firm numbers to project how much indirect tax revenue it will collect.
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