Why GST collection has surged, what the trend indicates.
India's goods and services tax (GST) revenue collected for the month of October is second highest since implementation of the tax regime in 2017, an official release by the ministry of finance said on Monday.
GST collection for October stood at Rs 1,30,127 crore. The government had recorded its highest ever collection of GST in April 2021 at Rs 1,41,384 crore.
The revenues for October are 24 per cent higher than the GST revenues in the same month last year and 36 per cent more than 2019-20.Gross revenue collections of Goods and Services Tax (GST) in October (for sales in September) rose 23.7 per cent year-on-year to Rs 1,30,127 crore. This is the second-highest revenue collection under GST ever since its rollout in July 2017, coming on the back of a pickup in economic activity and several compliance measures taken by tax authorities to curb evasion.
At Rs 1,41,384 crore in April this year, accounting for year-end sales, GST collections are the highest so far in the indirect tax regime.
How have the different GST components done?
Of the Rs 1,30,127 crore collected in gross GST revenue in October, Central GST is Rs 23,861 crore, State GST is Rs 30,421 crore, Integrated GST is Rs 67,361 crore (including Rs 32,998 crore collected on import of goods) and cess is Rs 8,484 crore (including Rs 699 crore collected on import of goods).
The government has settled Rs 27,310 crore to CGST, and Rs 22,394 crore to SGST from IGST as regular settlement. The total revenue of the Centre and the states after regular settlements in October is Rs 51,171 crore for CGST and Rs 52,815 crore for SGST.
Finance Minister Nirmala Sitharaman said in a tweet: “GST collection for October 2021 registered the second-highest since the implementation of GST Rs 1,30,127 crore gross GST revenue collected in October. Revenues… of October 2021 are 24% higher than the GST revenues in the same month last year & 36% over ’19-20.”
Chart 1 shows the trends in GST collections during the current calendar year. GST revenues have picked pace, with a 24-per-cent year-on-year growth and a 36-per-cent growth over the pre-pandemic period of 2019-20. The Finance Ministry said this growth in collections is “very much in line with the trend in economic recovery”.
“The GST revenues for October have been the second-highest ever since the introduction of GST, second only to that in April 2021, which related to year-end revenues. This is very much in line with the trend in economic recovery. This is also evident from the trend in the e-way bills generated every month since the second wave. The revenues would have still been higher if the sales of cars and other products had not been affected on account of disruption in supply of semiconductors,” it said.
Data released by the Finance Ministry also showed that timely payment of taxes has been increasing compared with previous months (Chart 2)
What are the measures being taken to ensure higher compliance?
State and Central tax authorities have been taken measures to ease compliance, such as nil filing through SMS, enabling a Quarterly Return Monthly Payment (QRMP) system and auto-population of return, the Ministry said. The tax authorities have also taken steps to block e-way bills for non-filing of returns, system-based suspension of registration of taxpayers who have failed to file six returns in a row and blocking of credit for return defaulters.
For GST revenues collected in the respective regions, Maharashtra posted a 23-per-cent growth in GST revenues in October, Tamil Nadu 11 percent, Gujarat 25 per cent, and Karnataka 18 per cent.
Tax experts said the uptrend is likely to continue in coming months due to the festive season. Abhishek Jain, Tax Partner, EY India, said, “The robust GST collections are quite encouraging and a clear sign of economic recovery. With the ongoing festive season, we can expect similar or even higher GST collections in the coming months.”
The number of GST returns filed till the end of September has also seen an upward movement.This indicates that the timely payment of taxes has been increasing over a period of time due to policy measures and administrative efforts, the government said.
In July, 1.5 crore returns were filed as taxpayers submitted returns of past months taking benefit of the relaxation given due to Covid. By September, almost 81 per cent taxpayers had filed GSTR-1.
This is very much in line with the trend in economic recovery. The revenues would have still been higher if the sales of cars and other products had not been affected on account of disruption in supply of semiconductors," the government noted.
During the month, revenues from import of goods was 39 per cent higher and the revenues from domestic transaction (including import of services) are 19 per cent higher than the revenues from these sources during the same month last year, the release said.
Of the total amount, CGST is Rs 23,861 crore, SGST is Rs 30,421 crore, IGST is Rs 67,361 crore (including Rs 32,998 crore collected on import of goods) and Cess is Rs 8,484 crore (including Rs 699 crore collected on import of goods).
Centre attributes the rise in GST revenue to robust recovery in economic activities, increased compliance over previous months and upward trend in GSTR filing.
An upward trend was witnessed in number of e-way bills generated during the month.
"The amount of taxable value clearly indicating the recovery in economic activity," the government said.
It further noted that the revenues were also aided due to the efforts of the state and Central tax administration resulting in increased compliance over previous months.
ICRA chief economist Aditi Nayar attributed October’s healthy growth in revenues to ‘pre-festive season stocking and improved compliance’. Semiconductor supply challenges could continue to constrain GST compensation cess collections, she pointed out.
The highest-ever GST collections of ₹1.4 lakh crore was recorded in April this year, which the Ministry stressed were related to ‘year-end revenues’, seeking to distinguish last month’s inflows as a more robust sign of recovery. It cited several data points, including an uptick in e-way bills and the amount of taxable value as ‘clearly indicating the recovery in economic activity’.
The gross GST revenue of ₹1,30,127 crore comprises ₹23,861 crore as Central GST, State GST of ₹30,421 crore and Integrated GST of ₹67,361 crore (including ₹32,998 crore collected on import of goods). The GST Compensation Cess collected in the month stood at ₹8,484 crore, including ₹699 crore received on import of goods.
Ms. Nayar stated, “With the October 2021 GST e-way bills expected to exceed the level seen in the previous month, the headline GST collections are slated to remain healthy in a range of ₹1.25-1.35 lakh crore in November”.
According to Deloitte India senior director M.S. Mani if the GST collections continue to be robust in the coming months, there is a chance the government may have higher than expected collections this year. “This would provide some fiscal space to absorb the increased healthcare costs,” he said
States’ revenue growth
Among the more industrial States, Gujarat and Maharashtra recorded a revenue growth of 25% and 23%, respectively. Karnataka saw an 18% growth, while Tamil Nadu and Haryana, with a large auto industry presence, reported a more subdued growth of 11% and 3%, respectively. The populous States of Uttar Pradesh and Bihar saw a healthy surge of 24% and 34%, respectively, while Odisha reported a sharp 49% uptick in revenues.
Arunachal Pradesh and Uttarakhand were the only ones to record a fall in GST revenues during the month, of 52% and 1%, respectively, while revenues were unchanged for Himachal Pradesh from a year ago. Among the Union Territories, negative growth was reported from Puducherry (-6%), Dadra and Nagar Haveli (-5%) as well as Daman and Diu, which saw a sharp 99% dip in revenues.
“With the ongoing festive season, we can expect similar or even higher GST collections in the coming months,” remarked Abhishek Jain, tax partner at EY India.
The revenues have also been aided due to the efforts of the state and central tax administration resulting in increased compliance over previous months. In addition to action against individual tax evaders, this has been a result of the multipronged approach followed by the GST Council,” the finance ministry added.
MS Mani, senior director at consulting firm Deloitte India said the high GST revenue in October is a result of continuing policy initiatives to improve compliance and discourage evasion.
The GST collection in October 2017 was ₹93,333 crore, in October 2018, ₹1,00,710 crore, in October 2019, ₹95,379 crore, and in October 2020, ₹1,05,155 crore.
The government recently introduced several measures to ease compliance such as nil-filing through SMS, quarterly return monthly payment (QRMP) system, and auto-population of return
The government allows GST registered taxpayers to file nil returns through an easy process of SMS if they do not have any business activity in a specific period to check deliberate tax evasion. While, QRMP saves small taxpayers from paperworks by allowing them to pay tax every month but file returns quarterly, auto-population of returns pre-filled details of invoices making tax evasion difficult.
In the past year, the GST Council took various steps to discourage non-compliant behaviour such as blocking of E-way bills for non-filing of returns, system-based suspension of registration of taxpayers who failed to file six returns in a row, and blocking of credit for return defaulters.
Mani said: “In addition to various measures to streamline return filings, e-way bill generation etc, several restrictions placed on non-compliant taxpayers would also have resulted in many taxpayers gradually becoming more compliant and paying GST and filing returns promptly. Going forward, we may see more checks and balances being introduced to encourage filers and dissuade non-filer Experts expect that the trend of strong revenue collection to be sustained.
Abhishek Jain, tax partner at consultancy firm EY India, said: “The robust GST collections are quite encouraging and a clear sign of economic recovery. With the ongoing festive season, we can expect similar or even higher GST collections in the coming months.”
October’s GST revenue correspond to transactions in September.
Experts say that expected reforms such as tax rate rationalisation and correction in inverted duty structure will push tax revenue further.
At the 45th meeting of the GST Council on September 17, the apex decision-making body on indirect tax matters took a decision on rationalising tax rates, and decided to correct duty inversions in textile and footwear sectors from January 1, 2022.
According to the Budget Estimates of 2019-20, the revenue receipts of the government are likely to come around Rs 19,62,761 crore. Of this, Rs 16,49,582 crore is expected to come in the form of tax revenue and the remainder as non-tax revenue.
Goods and Services Tax (GST) collection remained above Rs 1 lakh crore for the fourth month in a row at over Rs 1.30 lakh crore in October, indicating the impact of festive buying.
Union Minister of State for Finance Bhagwat Karad said buoyancy in GST collection in October shows the Indian economy, adversely affected by the coronavirus pandemic, is on the path to swift recovery.