For the 4th straight month, Goods and Services Tax (GST) Revenue collection continued to hover above ₹1 trillion-mark. The technology-based functioning of the new indirect tax regime has brought transparency and accountability to the system. However, given India’s level of tech penetration and understanding, there have been impediments to the boon as well. Besides, other Macroeconomic factors like global slowdown, Make in India initiative, etc. may hinder the optimum output of the regime.
Crux of the Matter
Sectoral slowdown, bank credit growth slump, slowing demand, etc. have hinted at the economic slowdown in India. Despite, a few positive signs, sentiments about the economy have not improved and the onset of Coronavirus has created more apprehension around growth. The Indirect Tax regime of India has shown a mixed sign of consumer and business confidence.
Comparison of GST Revenue in FY 18-19 & FY 19-20 (Apr-Dec) Source: Press Information Bureau of India
GST Revenue numbers in the last 4 months (Nov ’19 to Feb ’20) have remained above ₹1 trillion. GST Revenue collection in February 2020 surged by 8.3% to ₹1.05 trillion as compared to February 2019. 83.53 lakh Returns were filed in the month. Albeit, it remained slightly lower than the collection in January 2020, which was ₹1.1 trillion. From the February Revenue collection, the Centre earned, ₹43,155 crores, and the States earned ₹43,901 crores. Maharashtra collected the highest revenue in February 2020 at ₹15,735 crores, followed by Karnataka and Gujarat. IGST collection from imports has reduced to ₹20,745 crores in February 2020 from ₹23,481 crores in January 2020 and ₹21,295 crores in December 2019. With Narendra Modi-led NDA government pushing for ‘Make in India’, IGST from imports remains an important factor for the growth of domestic industries.
Revenue Trend Says Something GST revenue collection year on year is on a rising trend. However, it is important to understand the trend that each of the three years has shown. GST was rolled out in July 2017. The revenue collected in the first month after rollout was a massive ₹94,000 crore. However, in its debut year, GST collection started showing a trend that continued as the new regime matured. The rise in the revenue collection during the Financial year-end could be very well seen analogous and only slightly different from the famous behavioral bias in finance called the ‘January Effect’. Let us call that here the April effect. As the financial year nears its conclusion, or to put it another way, in the second half of a fiscal year, GST Revenue Collection picks up. As a part of the rise, a spike is seen in the month fiscal year ends, i.e March, and in April, when the fiscal year starts. The spike in March could be attributed to the behavior of clearance of stock before heading to a new financial year. Whereas, high in April can be a totally opposite ideology of shifting any major sale to the new fiscal to smoothen the company’s earnings. In any case, understanding the trend in the revenue collection can help States and the Centre to plan out their budget efficiently.
In the subsequent fiscal years, GST revenue collection during Quarter 2 (Q2, July – September) showcases a declining trend. It may be speculated that the businesses want a free cash flow before festivities and discounted sales start in Quarter 3 (Q3, October – December). Despite a slash in India’s GDP growth, GST Revenue Collection in 2019-20 has remained on average higher by 5% than the previous year.
Year-on-Year (Y-oY) % Change in Revenue Collection in FY 19-20 compared with FY 18-19
Implications of GST India’s Finance Minister Nirmala Sitharaman and RBI Governor Shaktikant Das have time and again come in support of the new regime. Yet, an economic expert like Subramanian Swamy considers it a roadblock to India’s vision of becoming a superpower. He said that the regime has cumbersome processes and that it ‘terrorizes the taxpayers’. Comptroller and Auditor General (CAG) in its report of GST for the year ended March 2019, pointed out certain much-talked impediments to the new regime. The report said that technological glitches have not permitted the envisaged ‘invoice matching system’. Owing to that, the system is still prone to fraud in Input Tax Credit (ITC).
One significant area where the full potential of GST (Goods and Services tax) has not been achieved is the roll out of the simplified tax compliance regime. – CAG Report 2018-19 on GST
The report also stated that a lack of coordination between GST executives and developers is hindering the development of the system. Although, it does believe that with a gradual stabilization, the compliance would improve.
Curiopedia
Goods and Services Tax (GST) is an indirect tax (or consumption tax) used in India on the supply of goods and services. It is a comprehensive, multistage, destination based tax: comprehensive because it has subsumed almost all the indirect taxes except a few state taxes. Multi-staged as it is, the GST is imposed at every step in the production process, but is meant to be refunded to all parties in the various stages of production other than the final consumer and as a destination based tax, it is collected from point of consumption and not point of origin like previous taxes. Goods and services are divided into five different tax slabs for collection of tax – 0%, 5%, 12%, 18% and 28%. However, petroleum products, alcoholic drinks, and electricity are not taxed under GST and instead are taxed separately by the individual state governments, as per the previous tax system. More Info
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