GST on food to plug leakage: Revenue secretary

Revenue secretary Tarun Bajaj has been seeking to ensure better compliance across tax payments and tells that the move to include packed and unbranded food items followed feedback from states and industry that the earlier regime was leading to leakage. Excerpts:

On changes in GST

Pre-GST too (before July 2017), there were several states that taxed pre-packed and unbranded food items. There was purchase tax in some cereal growing states.

After we changed the original GST formula, we were getting feedback from states that tax collections had come down and compliance was low as some companies, including some with prominent brands, were misusing the benefit. Industry too was complaining as a 5% tax arbitrage is significant in the food and FMCG business.

So, based on the discussions, the GST Council recommended the change in Chandigarh. We are not expecting a significant amount of revenue, but the idea is to plug the leakage.

One of the key themes is to make the tax regime simpler with fewer exemptions. During the last two Council meetings, we have also made a major effort in correcting the inverted duty structure.

On collections and compensation
Last year, GST collections grew 30%, while they have increased by 37% in the first quarter, which may partly be due to the base effect as there was some disruption in business activity due to the Delta variant in the first quarter of last year. But we expect the average monthly collections to maintain the trend of over Rs 1. 5 lakh crore. This will translate into a CAGR of around 12% from 2015-16. There are several states which would have seen higher growth.

On compliance
So far, compliance under GST is completely voluntary as you pay tax based on what you declare. We are moving to a system of scrutiny and audit, which will be based on a system of algorithms and will take up a small sample. We will look at aspects such as whether GSTR1 and GSTR3B are matching or not, or those who are not using cash (instead using only credits) or if there is a significant change in turnover.

On GST Tribunals
The group of ministers (GoM) will meet next week. What we have proposed is to have a judicial and administrative member in each tribunal and split the members from the state and the Centre. A final decision will be taken based on the GoM’s recommendations.

On windfall tax
We will review it every fortnight since doing it every month may hurt oil companies during times when prices are falling.

On overall tax collections
GST collections are looking good and point to healthy economic activity. Some people are saying that it may be due to inflation. The economy will grow 15-16% (in nominal terms) this year, so there is good buoyancy. We have given some concessions on products such as edible oil and pulses, which will have an impact on customs duty collections. But we are doing quite well on the direct tax front, growing around 37-38% in the first quarter. Let’s wait for the second quarter advance tax numbers.

Team Edu-Visor