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GST gets off to cracking start, but here is why Narendra Modi government must be watchful

At close to Rs 93,000 crore in July, collections from the Goods and Services Tax (GST) are more than encouraging even if it turns out some of this will go back to companies in the form of input credit. It is somewhat hard to tell just yet how much could flow back, but anecdotal evidence suggests several companies may not have claimed transitionary credit or credit for business done in the pre-GST regime.

Again, many may not have claimed input tax credit for operations in July. The reverse could also be true. Nonetheless, the final receipts may not be very different from the initial estimates since a third of the assesses are yet to pay up and those opting for the composition scheme will also file their returns—and, as finance minister Arun Jaitley said, once there is invoice-matching, people could be asked to pay more.

Extrapolating the numbers—which, according to some analysts, are 6.5% below the budgeted run rate—might be imprudent since they only pertain to one month. Right now, the government can take credit for a very good beginning.

A good two-thirds of the potential assesses are on board despite key notifications coming in at the eleventh hour, last minute software challenges and glitches in the GSTN. This alone would justify the decision not to delay the roll-out. Indeed, that collections in a month like July have been so robust is itself surprising.

This is typically an inauspicious time when households desist from making big ticket purchases, and activity in construction and real estate slumps.

To be sure, there was some re-stocking in sectors such as automobiles, following a severe de-stocking in June. It is possible apprehensions of a substantial increase in prices may have prompted some buying.

Jewellers may have stocked up on gold ahead of the festive season, which explains the inflows of Rs 20, 964 crore from import duties. But, by and large, July is not a time when business is brisk. Should inventories reverse to the mean in the next few months, so will the tax collections. The fact that tax collections are robust, then, would suggest that tax compliance has gone up—we have already seen that the number of taxpayers who are registered is up compared to the pre-GST period.

Annualising the cess collections— Rs 7,198 crore in July—to say collections are well ahead of the target of Rs 65,000 crore would be jumping the gun. But they do stand to get a boost should the GST Council decide to increase the cess on SUVs and luxury cars to 25% from the current 15%, once the Ordinance gets the president’s nod.

The GST Council meets again in the second week of September, but any lowering of tax rates—as optimists have suggested is now possible—is unlikely. But if collections remain buoyant once the system stabilises over the next year or so, and there is a genuine increase in collection efficiency—computerised matching of invoices is the key here—it is possible the GST Council could even lower rates or the number of taxes. Even without all taxpayers being on board—of the 73 lakh taxpayers, 13.8 lakh are yet to complete their registration—it has been a very good start.

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