A “feast of findings” is how Chief Economic Adviser Arvind Subramanian describes the insights yielded by the implementation of a Goods and Service Tax. Noting that there has been a fifty percent increase in the number of indirect taxpayers, the Economic Survey 2018 points out that “many have voluntarily chosen to be part of the GST, especially small enterprises that buy from large enterprises and want to avail themselves of input tax credits”.
Other notable facts revealed by GST data include -
1. The distribution of the GST base among the states is closely linked to the size of their economies allaying fears of major producing states that the shift to the new system would undermine their tax collections.
2. Data on the international exports of states (the first in India’s history) suggests a strong correlation between export performance and states’ standard of living.
3. India’s internal trade is about 60 percent of GDP, even greater than estimated in last year’s Survey and compares favorably with other large countries.
4. India’s formal sector, especially formal non-farm payroll, is substantially greater than currently believed.
The Survey states that the number of unique indirect taxpayers has increased by more than 50 percent, or 34 lakh, under GST to 98 lakh.
Old: 64 lakh
New: 34 lakh
Total: 98 lakh (Regular: 82 lakh, Composition: 16 lakh)
Data on these filers shows that only 13 percent of their total transactions are business-to-consumer transactions. Business-to-business transactions account for 34 percent of the total and exports 30 percent.
- About 16 lakh taxpayers, 17 percent of the total, are registered under the composition scheme.
- More than 54.3 percent of those eligible to register under the composition scheme, chose instead to be regular filers.
- Maharashtra, UP, Tamil Nadu and Gujarat are the states with the greatest number of GST registrants.
- UP and West Bengal have seen large increases in the number of tax registrants compared to the old tax regime.
Expectedly, the registered below-threshold firms account for 32 percent of total firms but less than 1 percent of total turnover and share in tax liability. Large firms, with annual turnover above Rs 100 crore, account for less than 1 percent of firms but 66 percent of turnover, and 54 percent of total tax liability.
And while it was assumed when implementing GST that small dealers who sell directly to consumers would choose the composition scheme, the Survey states that about half the transactions of the below-threshold firms which nonetheless voluntarily chose to comply are actually in the B2C space.
...small B2C firms want to be part of the GST because they buy from large enterprises. In fact, 68 percent of their purchases are from medium or large registered enterprises, giving them a powerful incentive to register, so they could secure input tax credits on these purchases.Economic Survey 2017-18
Producing States Prevail
The Survey includes two important findings - that, the biggest tax bases still seem to be in the biggest producing states.
State-wise Share Of Total GST Base
Maharashtra: 16 percent
Tamil Nadu: 10 percent
Karnataka: 9 percent
Uttar Pradesh: 7 percent
Gujarat: 6 percent
And that the GST tax base is balanced in terms of correlation to manufacturing and services.
Trading States, Competitive States
The Survey uses GST data to list for the first time ever in India state-wise distribution of international exports of goods and services.
Based on this data the Survey confirms that a “state’s GSDP per capita is highly correlated with its export share in GSDP”.
Internal trade in goods and services, at about 60 percent of GDP, is higher that the previously estimated 30 - 50 percent according to the Survey.
Inter-state trade data also confirms that top exporters are also top importers and that states that trade the most the ones are the most competitive and run the largest trade surpluses.
But the most interesting finding is that “ export concentration by firms is much lower in India than in the U.S., Germany, Brazil, or Mexico”.
The top one percent of firms in India accounted for 38 percent of exports versus the much higher 72 percent in Brazil and 55 percent in U.S.
Similarly, the top 25 percent of firms in India accounted for 82 percent of exports as against 99 percent in Brazil and 93 percent in U.S.
The Survey caveats the data saying it includes exports of services, where concentration ratios tend to be much lower than in manufacturing.
Formal Sector Bigger Than Expected
With GST data adding to social security data the Survey re-examines the size of the formal sector in India.
- About 0.6 percent of firms, accounting for 38 percent of total turnover, 87 percent of exports, and 63 percent of GST liability are what might be called in the “hard core” formal sector in the sense of being both in the tax and social security net.
- At the other end, 87 percent of firms, representing 21 percent of total turnover, are purely informal, outside both the tax and social security nets.
The Survey caveats that the data is enterprise-based and not household-based and also excludes the agricultural sector.
Nonetheless, it points out that the estimates, ranging from 31 percent in the case of social security-defined formality and 53 percent in the case of tax-defined formality, are considerably greater than current beliefs about the size of formal sector non-farm payroll.