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India’s GST collections are below potential: IMF team

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NEW DELHI: Multiple rates, exemptions and implementation challenges are affecting goods and services tax (GST) collections in India, an analysis by an International Monetary Fund (IMF) team has said. The study of India’s resource mobilisation for next five years has estimated that in 2018-19, GST collections were 5.8% of GDP, which was better than some of the comparable developing countries, but far below the potential of 8.2% of GDP, indicating that the efficiency gains from the new regime have not fully accrued. “The IMF team has estimated that the compliance gap may be of the order of 40%,” a government official told TOI. The team included Ruud de Mooij, Arbind Modi, Li Liu, Dinar Prihardini, and Juan Carlos Benitez. While it blamed multiple factors for the divergence between actual collections and potential revenue, the assessment flagged exemptions such as those on food articles as an area of concern. Exemptions for food products alone are estimated to cost up to 0.4% of GDP, and it suggested that the government could look at a direct benefit transfer for the bottom of the pyramid segments to tackle this issue. In fact, a committee of Indian government officers had pointed out that exemptions available to food products were being misused and segments such as basmati rice companies had sought to deregister their brands to avoid paying taxes. The IMF team has also said that other design flaws — which include multiple rates, as opposed to one or two rates in most countries, and the threshold for businesses to be included in the GST net — reduced the revenue potential and the incentive for compliance. Besides, some of the issues created economic distortions, including refund problems. While there are four slabs — 5%, 12%, 18% and 28% — there are other rates for bullion and real estate apart from cesses on luxury and sin goods such as cars, tobacco and soft drinks adding to the complexity. It has also pointed to the debate about implementation challenges such as electronic filing or returns, e-way bills for transporting goods beyond a certain value and cross matching of invoices, which trade and businesses have argued are cumbersome and increase the compliance cost. With GST collections falling short of the target, the government is seeking to plug leakage and also fix some of the design issues, including the possibility of an upward revision in some of the slabs. While the last meeting of the GST Council rejected the demand for a rate revision, some of the issues are expected to be taken up at next month’s meeting of the ministerial panel.

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