While, presenting the budget for 2017-18, the finance minister, Arun Jaitely had fixed a target of Rs 9.8 lakh crore for collection of direct tax. Against this, the government has already touched Rs 9.95 lakh crore and is expected to reach Rs 10 lakh crore by the time figures for the last few days of March, 2018 get confirmed.
Under the Goods and Services Tax [GST] rolled out on July 1, 2017, out of total collection of Rs 7.20 lakh crore till February, 2018, centre’s share is Rs 4.60 lakh crore which is Rs 16,000 crore higher than the target [Rs 4.44 lakh crore]. This is despite the fact that various tax evasion and safety measures such as electronic-way [e-way] bill etc were not put in place till March, 2018.
With e-way bill introduced from April 1, 2018 for inter-state transportation of goods and from June 1, 2018 for intra-state movement [in a calibrated manner], the collection under GST is expected to gather pace during 2018-19. The matching of sale and purchase data from April 1, 2018 will give a further boost.
A major reason for the pick up in direct tax collection is surge in the number of assesses from 5.43 crore during 2016-17 to 6.84 crore during 2017-18. Similarly, the revenue buoyancy under GST is due to significant increase in the businesses registered from around 70 lakh under erstwhile dispensation [excise duty/service tax/VAT etc] to more than a crore under the new regime.
The jump in the number of assesses coming under the tax net is the outcome of two major structural reforms viz. demonetization and GST implemented by the Modi – government in quick succession from November 8, 2016 and July 1, 2017 respectively.
Targeting the hoarders of black money, first it came out with an income declaration scheme [IDS] offering a 4 month window ending September 30, 2016 to come clean by paying tax at rate @ 45% slightly higher than the normal rate. The response was muted with disclosure of a mere about Rs 50,000 crore. Modi followed it up with demonetization when 1000/500 rupee notes were declared invalid.
It forced hoarders to deposit their unaccounted cash in banks as the alternative of hanging on to these beyond the D-day [December 30, 2016] would have reduced the value to nil. With this cash coming under full gaze of income tax department, they had no option but to file return and pay tax. This is reflected in the dramatic increase in the number of assesses for 2016-17 and 2017-18.
Under the erstwhile dispensation, even as the informal/parallel economy [a jargon for transactions done in cash – outside the banking system – on which no taxes are paid] grew at a rapid pace, the government never got the revenue from its growth. Now, when this gets submerged in the formal economy, the exchequer will gain by way of corresponding increase in tax revenue.
GST has also bolstered the prospects of boosting tax revenue. Given its inherent design – a single tax under a seamless supply chain with provision for credit on tax already paid – there is no way a business can escape the tax net. This means that millions of businesses who were earlier escaping will now have to become an integral part of supply chain and pay tax. They will also be forced to declare their profit/income from these businesses and pay income tax too.
In a way, GST and demonetization have complemented each other in forcing all businesses to become part of the formal economy and pay taxes. GST has many more long-lasting benefits to offer. Thus, by offering a simpler tax structure, eliminating the cascading effect of tax on tax, reducing logistics cost and less documentation, it will make Indian industry and services more competitive. This in turn, would increase exports, GDP, employment and revenue.
These reforms have also substantially improved liquidity with banks who can now lend more especially to small and medium enterprises [SMEs], help in funding of MUDRA [Micro Units Development Refinance Agency] under which loans are given to unemployed persons for starting their own business and support schemes like “Stand-Up India” requiring each bank branch to promote entrepreneur each from the SC/ST class and a woman.
A third major reform is enactment of the Insolvency and Bankruptcy Code [IBC]. Under IBC, the government has triggered a time bound process of resolving the ballooning NPAs [non-performing assets] of banks – mostly public sector banks [PSBs]. This has substantially enhanced the prospects of recovering a good portion of the money which was as bad as completely lost.
If, one goes by the progress in a dozen cases involving NPAs worth Rs 2 lakh crore referred by banks to the National Company Law Tribunal [NCLT] – the judicial authority for processing such cases – the banks are expected to recover at least half of this amount. With the resolution mechanism under IBC firmly in place, the chances of fresh NPA surfacing has been nipped in the bud.
Even as the trio of GST/demonetization/IBC seeks to recover what Modi euphemistically described as ‘the resources plundered by a handful of persons’, the government has concurrently taken steps to ensure that funds meant for the poor under various welfare/subsidy schemes actually reach them. It has achieved this by implementing direct benefit transfer [DBT] into their bank account.
It has also taken steps to empower the poor through schemes like PMJDY [Pradhan Mantri Jan Dhan Yojna]. Under it, an unprecedented 30 crore bank accounts were opened in which they have deposits of over Rs 70,000 crore. This way, not only these households have their hard earned savings safe but they can also leverage this to receive various financial benefits from the state. This will also help them better manage their occupational activities including new businesses.
To conclude, far from an economic disaster that critics predicted, Modi’s reform agenda has laid the foundation for ‘sustainable’ and ‘inclusive’ high growth of 7.5–8% – entering double digit zone in the medium to long-term.