GST will hit tax collections, but boost GDP in medium run: CEA

Over the medium run, the implementation of GST and enactment of other structural reforms should help the economy realise its real potential GDP growth of 8-10% , chief economic advisor (CEA)

Arvind Subramanian

has said in the

Economic Survey

.

However GST, which will be implemented from July 2017 if the finance ministry sticks to the new deadline, is likely to affect revenue collections adversely, particularly that of the Centre as the states’ revenues are guaranteed.

The survey pointed out that the transition to the GST is so complicated from an administrative and technology perspective that “revenue collection will take some time to reach full potential”. Combined with the Centre’s commitment to compensating the states for any shortfall in their own GST collections relative to a baseline of 14% increase, the outlook must be cautious with respect to revenue collections, the survey said.

The report suggested that the government should use the windfall gain from demonetisation to fund the deficit in tax collections under GST. It said the implementation of GST will lead to better tax compliance not only in indirect taxes (GST relates to indirect taxes) but in direct taxes also.

Implementation of GST will provide huge data on individual transactions. Greater information-sharing between the direct and indirect tax departments at the Centre, along with coordination with the states, could lead to greater compliance through non-punitive means. The implementation of GST will also remove the distortion in taxation which promoted inter-state as against intra-state trades.