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Non-compliance, evasion causing loss of ₹5 trillion in GST revenue

GST Revenue

According to the Fifteenth Finance Commission (FFC), the government may be losing ₹5 trillion in indirect tax revenue a year, amounting to 40% of its Goods and Services Tax (GST) mop-up target, due to tax defaults and evasion, confirming the worries of policymakers that businesses are not paying their fair share of taxes.

FFC, in its recent presentation to the GST Council, has shared that the loss of revenue was equivalent to 2.4% of gross domestic product (GDP). This works out to ₹5 trillion as per the first advance estimate of nominal GDP for FY20 released earlier this month. When comparing with the current trend of average ₹1 trillion a month in GST revenue in the first nine months of this financial year, this is equivalent to as much as 40% of the GST mop-up this year by the Centre and state together.

More than ₹9 trillion in GST collected so far

Central and state governments have collected more than ₹9 trillion in the indirect tax revenue in the nine months to 31 December and are expecting to collect another ₹3.55 trillion by the end of March. At a time when the government is struggling to meet the revenue targets for the year, the FCC’s estimate of revenue loss due to non-compliance is giving strong backing to the tax administration’s plan to tighten enforcement.

A team of economists from the International Monetary Fund (IMF) gave a presentation to FCC on the mobilization of resources over the next five years, with a special focus on improving GST revenue. The IMF team presented that the current indirect tax collections were significantly lower than the estimated revenue frontier for the country. A statement released by FFC said, “It was further discussed that rationalization of the rate structure, as well as improvements in compliance and collection efficiency of GST and other taxes, can move India much closer to the frontier.”

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