Hint of recovery of business activities: GST mop-up in June close to Rs 91,000 crore

The total revenue earned by the Central government and state governments after regular settlement in June, stood at Rs 32,305 crore for Central GST and Rs 35,087 crore for the State GST.

The Goods and Services Tax (GST) collections nose-dived to a record low of Rs 32,294 crore in April, which was down 72% on year, but then recovered to Rs 62,009 crore in May and further to a respectable Rs 90,917 crore (down just 9% on year) in June, according to data released by the government on Wednesday. This indicates a rather smart recovery of business activities after the lockdown was eased. Of course, the May and June collections are also boosted by the fact that a large section of returns for April and March and even February was filed in June; the government had extended the filing deadlines due to the lockdown.

GST collected in any month pertains largely to the transactions in the previous month; so the June GST collections being 91% of that in the year-ago month implies the transactions in many sectors of the economy jumped in May, from the abysmally low levels in April. Pertinently, states like Punjab, Chhattisgarh, Madhya Pradesh, Bihar, Assam, Andhra Pradesh, Telangana and Karnataka witnessed growth in collection in June over last year. North-Eastern states like Sikkim, Manipur, Mizoram, Tripura, Nagaland, Arunachal Pradesh too witnessed increase in revenue during the month.

The average monthly GST collection in FY20 was about Rs 1.02 lakh crore, up just 3.8% on year. The actual collections in the June quarter were Rs 1,85,220 crore , meaning the average monthly mop-up during the quarter was only 62% of the level in the last fiscal. Also, Q1 collections were 41% lower than the revenue garnered in the year-ago quarter. The nationwide lockdown imposed in the last week of March has cut a big hole in government revenues, but the pick-up from the all-time low level seems encouraging.

Pratik Jain, Partner & Leader, Indirect Tax, said: “June collections look impressive, almost 46% higher than May, which in turn was 92% higher than April. While the entire collection does not necessarily relate to transactions in May (as many businesses would have availed the facility of late payment for earlier months, without interest or lower interest), the buoyancy shows that business is picking up. The government would hope that this trend continues.”

That said, the fact remains that since its mid-July 2017 launch, the GST hasn’t boosted government revenues to the extent predicted by many experts, partly because of its structural infirmities and absence of a robust anti-evasion mechanism. Also, aggregate GST rate was lower than the revenue neutral rate (RNR) determined by experts right from the start. A series of rate cuts announced over the two years since the tax’s launch to accede to demands from sections of the industry have widened the gap between RNR and the aggregate rate. A steady improvement in compliance seen over 2019-20, particularly in the second half of that year, had had a positive impact on collections but compliance again slipped ahead of the Covid-19 pandemic and fell steeply due to the lockdown.

“The revenues during the financial year has been impacted due to Covid-19, firstly due to the economic impact of the pandemic and secondly due to the relaxations given by the government in filing of returns and payment of taxes due to the pandemic. However, figures of past three months show recovery in GST revenues,” the finance ministry said in a statement.

“The gross GST revenue collected in the month of June, this year stood at Rs 90,917 crore of which Central GST is Rs 18,980 crore, State GST is Rs 23,970 crore, Integrated GST is Rs 40,302 crore (including Rs 15,709 crore collected on import of goods) and cess is Rs 7,665 crore,” according to the government. During June, the revenues from import of goods were 71% and the revenues from domestic transaction were 97% of the collections from these sources during the same month last year. The government has settled Rs 13,325 crore to Central GST and Rs 11,117 crore to State GST from Integrated GST as regular settlement.

The total revenue earned by the Central government and state governments after regular settlement in June, stood at Rs 32,305 crore for Central GST and Rs 35,087 crore for the State GST.

Of course, the GST revenue growth is not only below the optimistic projections made before the launch of this comprehensive destination-based tax on consumption, but also trails the immediate-past trend growth rates of various taxes subsumed in GST. The 14% growth guaranteed to states in their GST revenue looks too much and the compensation kitty is increasingly falling short.

“The fact that the collections in Q1 are 59% of that in the similar period last year, while being indicative of the decline in economic activities during Q1, also indicates that a gradual revival is under way in some sectors,” MS Mani, partner at Deloitte India, said. “It is also very interesting to note that in June some of larger producing states have shown an increase in collections or stable revenues compared to last year while some of the consuming states have shown a decline,” Mani added.

Rajat Bose, partner at Shardul Amarchand Mangaldas & Co, said: “..it will be interesting to wait and see how much GST is collected for supplies made in June after unlock 1.0 which will be the true indicator of the economic situation post lockdown.”

Despite the recent release of Rs 36,500 crore by the Centre from the integrated GST pool, the state governments will require to be paid a whopping amount as compensation for their State Goods and Service Tax (S-GST) shortfall in the March-May period, going by the formula of 14% assured annual revenue growth.

S-GST shortfall on a monthly average basis was Rs 12,583 crore in FY20, Rs 5,773 crore in FY19 and Rs 4,571 crore in FY18 (last nine months). The compensation kitty was in surplus in FY18 (Rs 21,465 crore) and FY19 (Rs 25,806 crore), while FY20 witnessed the designated cess funds falling short of the requirement (by Rs 46,000 crore).