Tax buoyancy is likely to take a hit under the Goods and Services Tax (GST) regime with the government predicting a “very modest” 8-9 per cent growth in the indirect tax collections in the first year of GST implementation.

In the previous fiscal year, indirect tax collections recorded a growth of 22 per cent.

“In the first year (2017-18), because of implementation issues, there might be a little lag in income. That’s why we have kept a very modest target of growth of indirect taxes in 2017-18,” Revenue Secretary Hasmukh Adhia told IANS in an interview here.

“We have kept a target of 8-9-10 per cent growth target (in indirect tax collections) this year as compared to 22 per cent indirect tax growth that we saw in 2016-17. We have kept it as neutral this year, as we don’t know whether it will go up or down,” Adhia said.

Indirect tax collections (central excise, service tax and customs) in 2016-17 stood at Rs 8.63 lakh crore.

The Revenue Secretary said that apart from teething troubles, compensation that needs to be paid to the states and threshold limit of Rs 20 lakh annual turnover will also impact the revenues in the first year.

“Revenue in first year is uncertain, I am not sure, so can’t project it. It will go up overall but central government’s revenue will be same or not we will have to see. Because we are surrendering the cesses for the GST compensation,” he said. Cesses imposed on taxpayers so far went to the centre without any share to the states.

The Centre has agreed to compensate the states for any revenue losses in the GST regime for the first five years, with 14 per cent growth rate in taxes with a base year of 2014-15. According to the Compensation to States Law, cess applied above the taxation rate on sin or luxury goods will form part of the fund, which will be used to to compensate states for any revenue loss.

Also, earlier approximate one crore taxpayers were supposed to migrate to the GST, but Adhia said that the taxpayer base will go down since the threshold limit for registration is Rs 20 lakh on annual turnover. Under service tax, the threshold limit is at Rs 10 lakh annual turnover.

“If there are 30-50 lakh people between Rs 10-20 lakh threshold, they will not need to register. Taxpayer base will widen over a period, but initially the number of taxpayers will go down. So initially the tax net may shrink, compared to VAT and service tax,” he said.

Adhia said that the first year (under GST) depends on how smoothly people switch over, but the government would try for a seamless implementation so that there is no loss of revenue. He said that in all probability the indirect tax collections should report a better growth rate, but the ministry has kept “a modest target” so as not to go wrong on the fiscal deficit.

“I am optimistic that from the second year onwards, states, Centre and consumer, everybody should gain,” he added. The last date for migration to GST and to register on the Goods and Services Tax Network (GSTN), which is providing the IT framework, is April 30.