May 31, 2023

Has Withholding Input Credit Swelled The GST Kitty Unrealistically In February?

By Linus Garg
First publised on 2020-03-03 19:46:22

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Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.

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If the GST collection in February was actually about Rs. 1.5 lakh crore, it would have gladdened many hearts in India. But, as many corporate houses are alleging, the figure has swelled because input credit has been withheld. It is apparent from the other figures released recently by the NSO that economic activity has not improved in such a galloping manner to make for a nearly 40 percent jump in GST collections from the previous month. The government had, of late, shed the habit of dressing up figures to paint a rosy picture of the economy. But unrealistic projections have thrown its tax collection estimates haywire. Hence, it is once again falling in the trap of accounting jugglery to give a semblance of respectability to budgetary figures.

But in times of economic slowdown, is it prudent to have sky-high expectations? The government was wrong in pegging estimates for tax collection unrealistically when it was aware that demand was not picking up and manufacturing was contracting. There might have been some jump in the collection as a result of better compliance and plugging of loopholes, but a substantial part of the Rs. 1.5 lakh crore will later be adjusted as input credit. It is a case of a person trying to be happy and balancing his books with income which he knows is not rightfully his and will have to be repaid. The bureaucrats had miscalculated and they are now looking for ways to "set things right".

The figures speak for themselves. Tax collections for the first 10 months were only 70 percent of the target for the full year. This means the government will have to collect 30 percent in two months. Although last-minute payments traditionally swell the kitty at the end of the financial year, the state of the economy doesn't augur well for such high collections. The culprit is direct taxes, where collections have fallen by 4.3 percent. The government is hoping that the Vivad Se Vishwas scheme will entice taxpayers to come clean and provide a buffer. Indirect taxes have remained flat, mirroring the slowdown in the economy. In the future, the government must not put out unrealistic tax collection estimates to avoid such problems.