GST focused on ease of doing business, but procedural issues made transition phase tough: report

The Goods and Services Tax (GST), which was introduced about 20 months ago, has seen the total number of returns filed increase, though the shift in trade towards a formal economy has been slower than anticipated.

In a report by Motilal Oswal Financial Services, the brokerage highlighted that though the collections had increased, it was still below the target as deferment of anti-evasive measures for a smooth roll-out of GST impacted collections.

In the GST regime, the manufacturing sector witnessed an increase in working capital requirements, while the services sector has had to comply with increased state-level compliances and higher tax rates, the domestic brokerage said.

“GST collections have increased year-on-year in FY19 [until February], but the monthly average collection is lower than the target, slimming the prospects of achievement of the full-year target. However, in our view, collections should improve once the anti-evasive measures are put in place,” the report said. The average monthly GST collection in FY19 till February was ₹97,400 crore, higher than the FY18 monthly average of ₹89,900 crore, it added.

Scope for improvement

“We believe that GST collection should improve going forward, led by the rising compliance level from the broadening tax base and the government’s increased focus on implementing anti-evasive tax measures,” the brokerage report said.

Meanwhile, the total number of returns filed increased from 6.5 million in July 2017 to about 7.8 million in recent months. Further, while the GST revenue collection trend has been improving over the past 20 months, the monthly average revenue collection of around ₹97,300 crore (until February) in this fiscal is below the target of ₹1.06 lakh crore.

According to the brokerage, the FY19 revenue collection may fall short of the target by close to ₹1 lakh crore if the same revenue trend continues for the last month of FY19. “GST is certainly a move focused on ease of doing business. However, the lack of preparedness, the technology glitches in the GST platform and the non-clarity over certain procedural issues have made the transition phase tough,” the report highlighted.