Compensation has become the biggest issue in GST: Sushil Kumar Modi

Amid Covid, there aren’t many options to increase tax revenues, says Sushil Kumar Modi, Bihar deputy chief minister
Raising taxes or tweaking rates will not be possible for at least a year to overcome the revenue shortfall this year as the country struggles with the Covid-19 pandemic, says Bihar Deputy Chief Minister SUSHIL KUMAR MODI. He tells Dilasha Seth that the proposed reforms like simplified return form and e-invoicing facility, among others, will be difficult to push through in the fourth year. Edited excerpts:

How do you summarise the first three years of GST?

The first two years of GST went well and the revenue collections were very good despite technical and teething problems in the initial days. People had by and large accepted GST. The average revenue collection in the first year was Rs 82,295 crore, which increased to Rs 98,114 crore in 2018-19, growth of about 19.22 per cent over 2017-18. Everything was going on very well. The GST Council took cognizance of issues that erupted at that time. It didn’t turn out to be inflationary either as was the expectation. There were a number of changes and amendments that were made, so by and large people accepted the GST regime.

Did you anticipate that the revenue shortfall will be difficult to manage just three years down the road?

The problem in revenue started in the third year. Due to economic slowdown, the revenue started depleting. We were of the opinion that slowly it will improve and we will be able to cover up the gap in the initial months of the third year. During April to November also, the average monthly collection was in excess of Rs 1 trillion, with growth of 3.75 per cent compared to corresponding period of last year. But as the pandemic hit, it has derailed everything.

Did states feel at any point that the promised compensation mechanism will be disrupted?

In the third year, it was the first time that the GST Council felt that we are not able to compensate the states and that has become the biggest issue. As the gap in collections started increasing and compensation requirement increased, that became the biggest issue in the third year. In the fourth year, the revenue shortfall initiated by economic slowdown has been worsened by the pandemic. Now, the issue is how to cope up with the revenue losses.

Will reforms like the proposed simplified returns and e-invoicing see light of the day this year?

It is very difficult now to go for reform in the GST. We were thinking of bringing a new simplified returns this year, under which there is a provision for matching of credit. Besides, e-invoicing facility was to also go on floors. But it seems unlikely now. All other reforms initiatives which could increase our tax revenue have become very difficult to implement in the fourth year. The biggest challenge is with remains with respect to compensation.

Is hiking GST rates or rationalising them on cards amid revenue shortfall?

It will not be possible to increase tax rates or do any tweaking for another one year it seems. Amid Covid, there aren’t many options to increase tax revenues. We can’t burden the common man also. Besides, even if you increase taxes by 1 per cent, you won’t get more than Rs 50,000 crore in a year. In the next six months, it will not be possible to increase taxes. If you expand the scope of cess, and increase taxes on luxury items you would hardly collect Rs 8,000 crore through cess.  But raising taxes will not be possible this year.

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