Pandemic to eat up revenue, expect dive in gst mop-up

GST collections were pulsing with adrenalin in the past six months, but experts warn about an approaching ill-wind. March saw record collections at Rs 1.24 lakh crore registering a double-digit growth and chances are April will retain the momentum crossing the psychological Rs 1 lakh crore-mark, but the question is whether the trend can be sustained through May and thereafter. That’s because top contributing states like Maharashtra, Karnataka, Gujarat, Uttar Pradesh and Tamil Nadu are the most affected due to rising Covid-19 infections and have imposed lockdowns and restrictions. Estimates have already pencilled in a decline of 10-20% in May collections, as the localised lockdowns could hamper supply chains, consumption and demand. 

April too saw states imposing lockdowns, but notwithstanding the curbs, GST E-way bills till April 25 touched Rs 4.89 crore and are expected to cross Rs 5.5 crore, indicating resilience. But extended restrictions and curfews till mid-May could be a drag on economic recovery. Still, some believe the ongoing disruption will be transient and states will have comfortable collections in FY22. Right now, this is only a hope and a steady decline will be harmful. There is a substantial portion of unallocated inter-state collections and as per GST rules, this must be shared equally between the Centre and states. If this happens, states’ shortfall will narrow down to about Rs 6,000 crore, estimates SBI Research. The Centre should act on this, even if its net revenue takes a knock, forcing it to walk on eggshells, yet again. 

Regardless of the pace of collections, the next GST Council meeting will be keenly watched. The Council last met six months ago and states sought an emergency meeting demanding GST exemption on Remdesivir, Tocilizumab, Favipiravir and other Covid-19 related drugs, medical equipment like ventilators and others. Separately, a plea has also been filed in the Supreme Court seeking GST exemption on these items that are currently taxed at 12%. It’s only logical that the Council invokes Section 11 of CGST Act and exercises the power of exemption from payment of GST for the greater good.