Home Market Expectation of oil prices coming down under GST is unfair: Hasmukh Adhia

Expectation of oil prices coming down under GST is unfair: Hasmukh Adhia


In an exclusive interaction with ETNows Supriya Shrinate and Sandeep Gurumurthi, Finance Secretary Hasmukh Adhia discusses hits and misses of GST from the first year of the new tax regime as well as the way ahead.

Edited Excerpts:

Supriya Shrinate: One really has to begin by first congratulating you for playing your part in the GST roll out and being constantly vigilant, constantly eager and constantly ready to change things as and when it was demanded by industry and stakeholders. While no one can dispute the need for this tax, which has been in the making for 10 years, the criticism is that because of the teething troubles such as high rates, IT infra, refunds and e-way bill etc, it has not been able to achieve some of its main objectives. Now as one of the key architects, how are you going to rate the rollout one year later and where according to you has it fallen short on your own expectations?

Hasmukh Adhia: GST has settled down in a very well in a period of one year. The kind of problems, which you mentioned, they are always expected in any new system of taxation. So since this was a new system obviously there would be some initial glitches and the glitches were not unsurmountable. We have been able to get over them easily because of our willingness to change at every moment.

We have made so many changes in our notifications, rules and laws since we implemented GST, and they are all making the implementation process very very smooth now.

The main problem we faced was on account of technological challenges. Second, since this was a new law, the dissemination of information right up to the last person was a major task. It took some time for people to understand that what were the nitty-gritties of this — how to file a return, and how to take refund etc.

People made so many mistakes in their refund applications that we had to sort of find special ways to give the refund through manual process. But I am glad that even that major impediment of export refund has been got over. As of now according to my information, 90 per cent of the refund due has already been given, and if you take the old refund prior to April 2018, I think it is almost 100 per cent.

There may be still some cases which are very very difficult to crack, and I would request those companies or those parties to kindly approach the respective jurisdictional commissioners to sort out the issues.

Sandeep Gurumurthi: Before we get down to the specifics, we would like to step back and look at the big objective. Has GST according to you been able to achieve its big objective of formalising the economy? An HSBC report points that glitches in GST regime have increased the demand for cash instead. What do you believe needs to be done from here on for achieving that big objective of formalisation of economy because GST has to be seen in the context of other steps taken by the government to formalise the economy?

Hasmukh Adhia: Well if you take formalisation as an objective there are two goals.

One goal could be that how many new people are joining the new tax system. If you take the pre-GST figure of about 65 to 67 lakh people who were part of the indirect tax chain, now it is 1.14 crore people, who are already in the GST. So that is one specific target, which tells us that many more tax payers are coming in the tax net, which is an indication of formalisation.

The second indication of formalisation could be that are we getting more revenues compared to the pre-GST or not. Now if you take the calculation, which our chief economic advisor has made in one of the articles, he pointed out that if you take all the collections — CGST, SGST, IGST — as a whole and if you do comparison of total revenue in the GST era vis-à-vis in the pre-GST era the minimum growth rate in the last one year has been at least 13 per cent. Now this also is significant achievement, and I would like to think that if one is getting a 13 per cent growth rate in the first year where there are implementation glitches, then I think we are actually moving in the era of formalisation.

The third thing is that going forward when we have a system of return filing, which is perfect in which there is a possibility of every invoice being matched with every other invoice. The tax net will become even more secure and we will have much less leakages in the system and I think there would be much more level of formalisation.

Supriya Shrinate: I could not agree with you more on this. You know if there is a 13 per cent growth in revenue in the first year where there were glitches, this is an encouraging sign, but just want to draw focus to absolute numbers, the tax collection is always a good metric to judge any tax reform and something as big as GST is best judged by that. March was the only month in which GST collections topped that 1 lakh crore mark. Collections have mostly been hovering around Rs 83,000 crore in November to say about Rs 94,000 crore in April. Now experts blame it on compliance and high rates. Are you going to agree with them? Do you concede that perhaps compliance and high rates tax slab to be blamed and I also understand that given fiscal considerations and high oil prices we will be dependent on indirect taxes and given that reality is there any scope for further rate rationalisation?

Hasmukh Adhia: We have to go in the direction of having much less slabs of taxation in the GST regime, because the moment you have so many slabs or at least four slabs, the classification disputes would arise and there will also be some amount of duty inversion, which can be expected in certain products, but we are going to give refund for duty inversion so there is no problem.

The scope has to be created for rationalisation of slabs. As of now I would think that we are still in the mode of stabilising revenue and we must watch for this particular year. Let us see how and when we can have some more scope for rationalising the tax rates.

The general argument that higher the tax rate more the evasion of course is true for any commodity that generally happens, but I would like to think that the honesty cannot be measured only by rate. Honesty is something personal to individuals.

So because of our system of taxation is end-to-end IT driven, I would like to believe that there is a much less scope for evasion so even the items of 28 per cent very difficult to evade taxes at least in the first or second level of manufacturing or also in trading.

Sandeep Gurumurthi: If I could ask a follow up. In principal do you agree that this 28 per cent slab must go as pointed by Chief Economic Advisor Arvind Subramanian, and would you also say that it is unlikely to happen in the next year or two, will it take time for this slab to be done away with?

Hasmukh Adhia: Well let me ask you this question that if you remove 28 per cent slab on cigarettes, would you still like to collect cess or not?

Sandeep Gurumurthi : Fair point.

Hasmukh Adhia: So the taxation will remain the same in some form or the other. The question is whether you collect it by way of GST up to 28 per cent or whether you collect extra tax by way of cess. Of course there are certain items of production where there is no cess, only the rate is 28 per cent. The question is for them to be reduced to 18 per cent we need to have revenue scope, we should have scope in our revenue to reduce and take that kind of a revenue hit so that is the only issue. But whether you abolish 28 per cent, we can also say that from tomorrow all items of 28 per cent will attract instead of 28 per cent tax rate, 18 per cent GST and 10 per cent cess, but that is hardly going to be of any use to us.

Supriya Shrinate: In terms of revenue shortfall the union territories such as Daman and Diu, Dadar and Nagar Haveli and Puducherry have shortfall of about 74 per cent, 59 per cent, 49 per cent. States like Himachal and Uttarakhand and Bihar and J&K also have a shortfall, and then there are about two-three states that have revenue surplus. Now, this is going to be a strain on your own resources because the centre will have to compensate, how do you believe this is going to impact the centres own fiscal math?

Hasmukh Adhia: Well, if you remember our entire mechanism of GST is designed in such a way by the GST Council that there is no need for dependence on the Government of India for meeting the compensation liability. The compensation liability is separately to be met from the compensation cess, which is being collected from goods and services.

So, that way there is an independent mechanism and that cess amount, which is going to take care of the compensation we have estimated absolutely correctly, and I do not think there will be a need for us to exceed that amount of cess collected. So, the Government of India does not have to give anything out of its own kitty, out of its own fiscal maths for any compensation. So, there is an independent mechanism for it and we would be able cope up with it.

Sandeep Gurumurthi: The last meeting decided on bringing one return form, it was decided that the current system of filing summary returns, GSTR-3B and final sales return GSTR-1would continue for six months. Are we on course for the transition and also more importantly on invoice matching, while that has been suspended on account of a lot of feedback that you got from traders, it has been suspended for six months. Will the government look at reintroducing invoice matching to avoid tax evasion because many experts believe that that is the only way to sort of check tax evasion, and sections of industry also now feel the matching concept of purchase and sales invoice would protect them from future disputes and penalties so your thoughts on that as well?

Hasmukh Adhia: Our new system of return filing, which we have promised, that is going to take care of this invoice matching. It will be a very simple one single GST return and we would give the opportunity of informing everybody as to how many of your purchases are not uploaded by your sellers.

If there are people from whom I have bought goods and if they have not uploaded the invoices on the system then I would be informed about it. So, like that we have made a system, everybody will be able to see how much is the gap between what they have purchased and how much sellers have uploaded and with this information being shared with every taxpayer they will become very cautious, they will be able to deal with only clean type of dealers who are very regular in filing their returns so that the burden of tax does not come on the purchaser. So, where the tax is supposed to be collected by the seller and tax is supposed to be paid by the seller. So, if the seller is a fly by night operator it is very difficult for a buyer to then deal with him. So, new system of return filing will exactly take care of this.

Supriya Shrinate: This growing clamour that each time there is a fuel price hike everybody believes as if the GST has some magic wand. Crude prices have been volatile, and the only solution to that seems to be put that under the GST everything will be taken care of. But as somebody who understands finance and the revenue implication of this is this going to be as easy because would not revenue neutral rate a) make it a difficult proposition because rates could go up in some states, besides how likely are states to be on board for a move as big as this 10 months before general elections?

Hasmukh Adhia: GST, as you rightly mentioned, is not a magic wand which will solve the problem of oil price volatility. If the oil price is volatile then the only way to have a stable — suppose if somebody is asking for a stable regime of petroleum prices which may not itself be a desirable indicator, the question is that that can only be done if either the state government or the central government sacrifices. Now, that is something which without GST also anybody can do. We do not have to go in for GST to do that. It is a simple mathematics that if after implementation of GST if we have to continue to get the same level of revenue as we are getting now and if it is a revenue neutral rate as you say it, then where is the question of prices coming down.

So, that expectation that if petrol and diesel comes into GST the prices will come down that is not correct. The second question that you asked about what is the possibility of doing it, according to me out of five commodities there are two commodities which can probably be easy candidates and they are natural gas and ATF. Now, it is for GST Council to debate about it, discuss it and then decide about it.

Sandeep Gurumurthi: The idea from day one is to have a unique GST that suits the needs of India and that is why we started off with a four-rate structure but now a cess on sugar is being weighed upon, would not it some sense open a Pandoras box? I know you have a committee that is looking into it but states such as Kerala are opposing it while sugar producing states like UP and Maharashtra for obvious reasons are backing it, you already have a sugar package, is there any merit in this demand, I know the attorney general has opined that a cess can be levied but should we avoid distorting the GST structure through mechanisms like this?

Hasmukh Adhia: Well, since this matter is already before the group of ministers which is a sub-committee of the GST Council I would like to comment on it at this stage.

Supriya Shrinate: The council has right in its wisdom has opined a special refund window for exporters about Rs 12,000 crore refunds have been cleared out of Rs 20,000 crore, the CBIC chairperson says the aim is to get pendency at levels at about Rs 500 crore, is not it way to ambitious and what exactly is the roadmap that you have to get to that number?

Hasmukh Adhia: Well, it is not at all ambitious if you ask me, the initial glitches were on account of wrong filing of refund applications. People had filed different items in different columns, they did not know how to do it correctly and that is why they were stuck up. Now, people have learned how to make the correct application for refund, particularly the IGST refund. The major item of export refund is IGST refund, not the ITC refund. Now, the IGST refund system is designed in such a way that if you have filed your shipping bill correctly and if you file your return correctly then within three days after filing your return you will get your refund automatically, no manual intervention is required and it is already happening in case of current refund so people are now pleasantly surprised that there is no need to approach anybody, within three days automatically the refund comes. I am talking about IGST refund. As far as ITC refund is concerned, there is still some amount of manual intervention required and we will try and see how we can make it automatic there also.

Original Article


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