The galloping GST revenue

The GST revenue collection for April 2021, the first month of the new fiscal set a new record. A total of Rs 1,41,384 gross GST revenue was collected, which is by far the highest since the introduction of GST in 2017. The March 2021 collection at Rs 1,23,902 crore being the previous highest.

The PIB release of the Ministry of Finance gushes, ’despite the second wave of COVID-19 Pandemic affecting several parts of the country, Indian Businesses have once again shown remarkable resilience by not only complying with the return requirements but also paying GST dues in a timely manner during the month’. Yes, there is a lot of cause for celebration since it is the seventh successive month that the Rs 1 lakh crore mark has been breached.

April 2021 also witnessed a spurt in merchandise exports to USD 30.21 billion. The increase is to the order of 197 percent when compared to the export figure of April 2020. But this is lesser than the merchandise exports of USD 34.0 billion achieved in the very previous month of March 2021. Imports at USD 45.45 billion also showed an increase of 165.99 percent over imports of April 2020.

India continued to be a net importer with a trade deficit of USD 15.24 billion. The Gross Fixed Capital Formation (GFCF) an important indicator of investment also rose in Q3 2021 to 27.7 percent.

All this would suggest the economy is looking up-but this flies in the face of facts on the ground. The pandemic induced lockdowns in large parts of the country especially critical states like Maharashtra and Karnataka is hurting economic activity.

The eight-core sector output fell sharply by 4.6 percent in February 2021 when compared to the corresponding month of the last year. Coal fell by 4.4 percent, crude oil by 5.2 percent, Natural Gas by 1 percent, refinery products by 10.9 percent, Fertilizers by 3.7  percent, steel by 1.8 percent, cement by 5.5 percent and electricity by 0.2 percent.

All this cumulatively suggests lower power generation, lower demand for infrastructure, lower buoyancy in the industrial sector and a drop in construction activity.

The last quick estimates of Index of Industrial Production (IIP) and use-based index for the month of February 2021, released in mid-April also suggest that the economy is still in the throes of recovery.

The sectoral IIP figures showed a dip in mining and manufacturing; the overall growth having contracted by 3.6 percent. The IIP use based data showed a drop by 3.8 percent. The monthly index of production across the major industrial groups also revealed a dip. NSDL data shows that net FPI flows turned negative in April; the CMIE data reveals a similar negative trend in the current account balance in Q3 2021. The CMIE data also shows a spurt in unemployment.

The last HIS Markit India Services PMI based on data compiled from monthly replies to questionnaires to about 350 private sector service companies showed a decline to 54.6 in March 2021 from 55.3 in the previous month. Any number above 50 is still good and suggests the service sector has done well. The extensive and extended electioneering has seen more footfalls in the long-suffering hospitality and travel sectors.

Anecdotal evidence suggests that several high-end hotels in the states which went in for elections had up to 100 percent occupancy for long periods with a corresponding spurt in the various support services. The IPL caravan too is a major contributor to the service sector.

So, while the breakup of revenue between goods and services is not readily available, it would be safe to surmise that the service sector has contributed significantly to the overall GST revenue. The data available also suggest that substantial revenue has also been collected as IGST on import of goods.

Another possible reason for the increase in GST revenue is of course that overall compliance has indeed improved. This was one of the avowed goals for the introduction of GST. The fact that GSTN has also settled down and is truly acting as a facilitator for hassle-free filing of returns has also played a significant role.

The increase in collections is also a testament to the power of sharing of data across departments that were working in silos till not too far back. The CBDT, MCA, Customs with CBIC and GSTN have established clear protocols for the sharing of data which leads to more informed analysis and targeted action.

And there is also no doubt that the sustained enforcement action against fake invoicing is bearing fruit. As economist Joel Slemrod has said ’no government can announce a tax system and then rely on taxpayers’ sense of duty to remit what is owed’

Thus, detections continue as evidenced by the recent detection by a CGST Commissionerate of a GST fake invoice fraud case of taxable value in excess of Rs.150 crore. Two persons involved in the generation of fake invoices were arrested. Such detections have a huge persuasive effect on fence-sitters.

Incidentally, it may be mentioned that the introduction of the provisions of arrest in GST law was hotly debated when the draft law was being finalized. The discussions were spread across several GST council meetings. Given the experience of Central Excise and Service Tax as also of several state VAT administrators, it was finally introduced with appropriate safeguards to check possible misuse. And as the revenue numbers would suggest, have acted as a huge deterrent.

Going forward there is no room for complacency. The numbers will start to reflect the debilitating impact of the pandemic on the economy. We have to be prepared for stressful times.

Najib Shah is the former chairman of the Central Board of Indirect Taxes & Customs. The views expressed are personal

Leave a Reply

Your email address will not be published. Required fields are marked *