In the critical time of Coronavirus, Government of India has taken a crucial step of releasing Rs.18,000 crores of pending refunds to the respective Income Tax payers. Complete Coverage: Coronavirus
Crux of the Matter
Tax Refunds as Monetary Measure The increasing number of Coronavirus cases in India may compel the government to extend the lockdown. In such a case, businesses across the country will be cash-strapped. Currently, almost every sector is also facing a labour shortage.
The government extended its relief by releasing pending refunds worth Rs.18,000 of Income Tax and GST returns. The Ministry of Finance said that this move will benefit 14 lakhs individual taxpayers and 1 lakh businesses. The government will soon release the pending GST refunds too, which will support and enable the small and medium businesses to pay pending wages to laborers. But the Government will only entertain pending refunds amounting up to 5 lakh rupees. Besides financial aid, the Government also gave permission to companies to hold meetings on virtual platforms and to continue operations.
MPs Pay Cut Looking at the severity of the matter, Ordinance has been passed by the members of Union cabinets, which will allow the government to implement pay-cuts in the allowance and pension of members of parliament by 30% for 1 year. Union Minister Prakash Javadekar declared that MPLADs (Members of Parliament Local Area Development Scheme) fund has been discontinued till 2022. Further, he informed that this fund of Rs.7,900 crore (Rs 5 crore per annum per MP, for 2 years) will go into the welfare of the nation during the coronavirus crisis.
A tax refund is a reimbursement to a taxpayer of any excess amount paid to the tax collecting authority. Taxpayers tend to look at a refund as a bonus or a stroke of luck, but it really represents an interest-free loan that a taxpayer makes to the government.
In the budget presented on Feb 1st, 2018 by Arun Jaitley, salaries of the MPs witnessed a hike of as much as 25%, which might be brought back down after recent pay cut.
For the 4th straight month, Goods and Services Tax (GST) Revenue collection continued to hover above ₹1 trillion-mark. The technology-based functioning of the new indirect tax regime has brought transparency and accountability to the system. However, given India’s level of tech penetration and understanding, there have been impediments to the boon as well. Besides, other Macroeconomic factors like global slowdown, Make in India initiative, etc. may hinder the optimum output of the regime.
Crux of the Matter
Sectoral slowdown, bank credit growth slump, slowing demand, etc. have hinted at the economic slowdown in India. Despite, a few positive signs, sentiments about the economy have not improved and the onset of Coronavirus has created more apprehension around growth. The Indirect Tax regime of India has shown a mixed sign of consumer and business confidence.
GST Revenue numbers in the last 4 months (Nov ’19 to Feb ’20) have remained above ₹1 trillion. GST Revenue collection in February 2020 surged by 8.3% to ₹1.05 trillion as compared to February 2019. 83.53 lakh Returns were filed in the month. Albeit, it remained slightly lower than the collection in January 2020, which was ₹1.1 trillion.
From the February Revenue collection, the Centre earned, ₹43,155 crores, and the States earned ₹43,901 crores. Maharashtra collected the highest revenue in February 2020 at ₹15,735 crores, followed by Karnataka and Gujarat. IGST collection from imports has reduced to ₹20,745 crores in February 2020 from ₹23,481 crores in January 2020 and ₹21,295 crores in December 2019. With Narendra Modi-led NDA government pushing for ‘Make in India’, IGST from imports remains an important factor for the growth of domestic industries.
Revenue Trend Says Something GST revenue collection year on year is on a rising trend. However, it is important to understand the trend that each of the three years has shown.
GST was rolled out in July 2017. The revenue collected in the first month after rollout was a massive ₹94,000 crore. However, in its debut year, GST collection started showing a trend that continued as the new regime matured. The rise in the revenue collection during the Financial year-end could be very well seen analogous and only slightly different from the famous behavioral bias in finance called the ‘January Effect’.
Let us call that here the April effect. As the financial year nears its conclusion, or to put it another way, in the second half of a fiscal year, GST Revenue Collection picks up. As a part of the rise, a spike is seen in the month fiscal year ends, i.e March, and in April, when the fiscal year starts. The spike in March could be attributed to the behavior of clearance of stock before heading to a new financial year. Whereas, high in April can be a totally opposite ideology of shifting any major sale to the new fiscal to smoothen the company’s earnings. In any case, understanding the trend in the revenue collection can help States and the Centre to plan out their budget efficiently.
In the subsequent fiscal years, GST revenue collection during Quarter 2 (Q2, July – September) showcases a declining trend. It may be speculated that the businesses want a free cash flow before festivities and discounted sales start in Quarter 3 (Q3, October – December). Despite a slash in India’s GDP growth, GST Revenue Collection in 2019-20 has remained on average higher by 5% than the previous year.
Comptroller and Auditor General (CAG) in its report of GST for the year ended March 2019, pointed out certain much-talked impediments to the new regime. The report said that technological glitches have not permitted the envisaged ‘invoice matching system’. Owing to that, the system is still prone to fraud in Input Tax Credit (ITC).
One significant area where the full potential of GST (Goods and Services tax) has not been achieved is the roll out of the simplified tax compliance regime.
– CAG Report 2018-19 on GST
The report also stated that a lack of coordination between GST executives and developers is hindering the development of the system. Although, it does believe that with a gradual stabilization, the compliance would improve.
Goods and Services Tax (GST) is an indirect tax (or consumption tax) used in India on the supply of goods and services. It is a comprehensive, multistage, destination based tax: comprehensive because it has subsumed almost all the indirect taxes except a few state taxes. Multi-staged as it is, the GST is imposed at every step in the production process, but is meant to be refunded to all parties in the various stages of production other than the final consumer and as a destination based tax, it is collected from point of consumption and not point of origin like previous taxes. Goods and services are divided into five different tax slabs for collection of tax – 0%, 5%, 12%, 18% and 28%. However, petroleum products, alcoholic drinks, and electricity are not taxed under GST and instead are taxed separately by the individual state governments, as per the previous tax system. More Info
Das Backs Demonitization RBI Governor Shaktikanta Das said, “I think demonetization has had a positive impact on the economy in terms of formalizing the economy, checking the so-called parallel economy/unaccounted money.” He also said that the Reserve Bank of India (RBI) hasn’t taken any stock of the impact of demonetization on sectors such as MSME.
Growth Focussed In January 2020, the retail inflation spiked to 7.59%, which is the highest in 68 months. The country witnessed a sharp increase in vegetable prices, to which the RBI Governor said, “With this temporary spike in inflation, we have not shifted our attention from growth. We are still focused on growth.”. Finance Minister Nirmala Sitharaman recently had said that except for some perishable commodities, prices of most of the products are within the acceptable limits.
Speaking on the liquidity crisis in the country’s NBFC sector Shaktikanta Das said that the RBI wass closely and intensively monitoring the top 50 NBFCs which account for roughly 75% of the total NBFC portfolio.
He added by saying, “We are very mindful of the aspect of financial stability in the case of banks too. RBI will always ensure that stability of the banking sector is maintained.”
Swamy Slams GST On the contrary, BJP MP Subramanian Swamy has described GST as ‘the biggest madness of the 21st-century’ and highlighted that the country needs a 10% growth per annum to become a superpower by 2030.
Calling GST a complicated regime he said India is facing a shortage of demand as people do not have money to spend which according to him is hindering the economic cycle. He also pointed out the need for new reforms and believes that India has not improved on the reforms that former Prime Minister Narasimha Rao had brought in.
The GDP growth rate measures how fast the economy is growing by comparing one-quarter of the country’s GDP to the previous quarter. GDP measures the economic output of a nation. The GDP growth rate is driven by the four components which are personal consumption, business investment, Government spending and net trade. The OECD defines GDP as “an aggregate measure of production equal to the sum of the gross values added of all resident and institutional units engaged in production and services. The international standard for measuring GDP is contained in the book System of National Accounts (1993), which was prepared by representatives of the International Monetary Fund, European Union, Organisation for Economic Co-operation and Development, United Nations and World Bank provides a set of rules and procedures for the measurement of national accounts. More Info
Demonetisation – On 8 November 2016, the Government of India announced the demonetization of all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series. It also announced the issuance of new ₹500 and ₹2,000 banknotes in exchange for the demonetised banknotes. The Prime minister of India Narendra Modi claimed that the action would curtail the shadow economy and reduce the use of illicit and counterfeit cash to fund illegal activity and terrorism. The announcement of demonetisation was followed by prolonged cash shortages in the weeks that followed, which created significant disruption throughout the economy. People seeking to exchange their banknotes had to stand in lengthy queues, and several deaths were linked to the rush to exchange cash.According to a 2018 report from the Reserve Bank of India, approximately 99.3% of the demonetised banknotes, or ₹15.30 lakh crore of the ₹15.41 lakh crore that had been demonetised, were deposited with the banking system. The banknotes that were not deposited were only worth ₹10,720 crore, leading analysts to state that the effort had failed to remove black money from the economy. More Info
In an interaction with industry leaders in Kolkata, Finance Minister Nirmala Sitharaman reiterated government’s view on including petrol and petroleum products under GST by saying, “It is already covered in the GST and the states have to decide when they want petrol and petroleum products to be taxed under GST.”
Crux of the Matter
The Finance Minister said that there is no need for any new amendment to include petrol under GST. It is upon the states and the GST council to agree on the rate and decide when to charge it from.
At the time of roll-out of GST, after deliberate discussions, a provision was made to include petroleum products in the new regime at zero percent.
Petroleum products have been placed under the GST due to the foresight of the late Finance Minister Arun Jaitley.
Finance Minister Sitharaman spoke deliberately addressing a variety of concerns faced by the industry at the post-Budget interaction organized by the Ministry of Finance in Kolkata.
Goods and Services Tax (GST) is an Indirect Tax that came into effect from July 1, 2017. It has subsumed almost all the indirect taxes except few; multi-staged as it is imposed at every step in the production process, but is meant to be refunded to all parties in the various stages of production other than the final consumer and as a destination-based tax, as it is collected from point of consumption and not point of origin like previous taxes. Goods and services are divided into five different tax slabs for collection of tax – 0%, 5%, 12%, 18%, and 28%. More Info
Data Analytics of the Revenue Department found out 1200 exporters linked to GST return frauds. These untraceable exporters are said to have used forged identities, which, as per the government, would have left a digital trail.
Crux of the Matter
“The department has reasons to consider those nefarious elements among the customs broker community may be connected with these frauds, involving fictitious entities, existing only in virtual space through identity thefts with fake and morphed documents“, as per Revenue Department’s source.
Central Board of Indirect Taxes and Customs may obligate customs brokers under their licensing conditions to independently verifying the KYC of exporters.
Revenue department came to know about this fraudulent activity while carrying out physical scrutiny of the firms at their declared addresses, where they found no existence of firms.
Around 50 custom brokers have been found guilty for making fake documents, virtual entities. Custom brokers are now under the lens of the Revenue department.
Tracing fake web profiles helped the department to dig the fraudulent activity further. It found fraudulent tax credit worth Rs. 195 crores and untraceable suppliers. In total, revenue department has rejected Rs. 350 crores of GST refund coming from fraudulent firms.
This kind of incident shows loopholes in the execution of GST.
Indian Revenue Service – The IRS comprises two branches, IRS (Income Tax) and IRS (Customs and Indirect Taxes), controlled by two separate statutory bodies, the Central Board of Direct Taxes (CBDT) and the Central Board of indirect taxes and Customs (CBIC). The duties of the IRS (IT) include providing tax assistance to taxpayers, pursuing and resolving instances of erroneous or fraudulent tax filings, and formulating and enforcing policy concerning income tax in India. The duties of the IRS (C&IT) include formulation and enforcement of policy concerning the Goods and Services Tax, prevention of smuggling and administration of matters related to Customs and Narcotics. More Info