Record rise in GST mop-up a good sign that can help narrow fiscal deficit

There are three cheers for the government on the front of goods and services tax (GST) collection. Firstly, the gross GST revenue collected in the month of December rose to Rs 1.15 lakh crore, an all-time monthly high since the implementation of the new tax regime. Secondly, the last month of the just concluded calendar year 2020 marked third month in a row which witnessed the gross GST revenue collections crossing Rs 1 lakh crore.

Thirdly, the average growth in GST revenues during the December quarter has been 7.3 per cent as compared to -8.2 per cent during the second quarter and -41.0 per cent during the first quarter of the financial year. Central Board of Indirect Taxes and Customs (CBIC) has introduced Rule 86B under the Central GST Act, which restricts use of Input Tax Credit (ITC) for discharging GST liability to 99 per cent.

Under the Act, any registered person can't use the amount available in electronic credit ledger to discharge his liability towards output tax in excess of 99 per cent of tax liability, in cases where the value of taxable supply in a month exceeds Rs 50 lakh. In simple terms, businesses with monthly turnover of over Rs 50 lakh will have to mandatorily pay at least one per cent of their GST liability in cash. The rule makes it difficult to fraudulently claim ITC under the GST system.

Moreover, introduction of e-invoice system, which has gathered momentum now, has helped curb generation of fake invoices. Earlier, the-invoice system had been introduced for an annual turnover of over Rs 500 crore. Now, it has been lowered to Rs 100 crore turnover. Under the new regime, traders have to go for e-invoice for ITC, which is quite transparent.

The enforcement wing, Directorate General of GST Intelligence (DGGI) has made the system of monitoring fake ITCs more stringent, which has created a sense of panic among the people that are normally indulged in fraud-related activities. As a result, total GST revenue collected so far in the current fiscal is Rs 7.80 lakh crore. Moreover, it is expected that the GST collection for each of the three remaining months of the fiscal would cross Rs 1.25 lakh crore.

The current fiscal year's Budget, 2020-21 has projected gross tax collections at Rs 24.23 lakh crore. If all goes well, the government will be able to narrow the fiscal deficit gap for the current fiscal, which is hovering at 3.5 per cent at present, to a significant extent.