GST on Food to Plug Leaks: Tax Secretary

Revenue Secretary Tarun Bajaj sought to ensure better tax payment compliance and told TOI that the decision to include packaged and unbranded food products followed comments from states and industry that the previous regime was leaky. Excerpts:
On the changes of GST
Also before the GST (before July 2017), several states taxed pre-packaged and unbranded food products. There was a purchase tax in some grain producing states.
After changing the original GST formula, we received feedback from states indicating that tax collections had declined and compliance was poor as some businesses, including some with top brands, were abusing the benefit. . The industry was also complaining, as a 5% tax arbitrage is significant in the food and FMCG sector.
Thus, based on the discussions, the GST advice recommended the change to Chandigarh. We don’t expect a significant amount of revenue, but the idea is to plug the leak.

One of the key themes is to simplify the tax system with fewer exemptions. During the last two Council meetings, we have also made a major effort to correct the inverted fee structure.
On recoveries and compensation
Last year, GST collections increased 30%, compared to a 37% increase in the first quarter, which may be partly due to the base effect, as there has been some disruption commercial activity due to the Delta variant in the first
quarter of last year. But we expect the average monthly collections to maintain the trend of over Rs 1.5 lakh crore. This will result in a CAGR of around 12% from 2015-16. There are several states that would have experienced higher growth.
On Compliance
So far, GST compliance is completely voluntary, because you pay tax based on what you declare. We are moving to a review and audit system, which will be based on an algorithm system and will take a small sample. We will look at aspects such as whether or not GSTR1 and GSTR3B match, or which are not using cash (instead of only using credits) or whether there is a significant change in turnover.
On the GST Courts
The Group of Ministers (GoM) will meet next week. What we have proposed is to have a judicial and administrative member in each court and to separate the State and Center members. A final decision will be made based on GoMrecommendations.
On the exceptional tax
We will review it fortnightly, as doing it monthly can hurt oil companies during periods of low prices.
On the overall collection of taxes
GST collections are looking good and indicating healthy economic activity. Some people say it may be due to inflation. The economy will grow 15-16% (in nominal terms) this year, so there is good momentum. We have granted certain concessions on products such as edible oil and pulses, which will have an impact on the collection of customs duties. But we’re doing pretty well on the direct tax front, growing about 37-38% in the first quarter. Let’s wait for the second quarter withholding tax figures.