Here's What's Pushing Up GST Collections In India

An economic revival-led consumption, increased exports, enhanced compliance, and, to some extent, elevated inflation kept goods and services tax collection above the Rs 1.40 lakh crore mark for the sixth consecutive month since March 2022.

The Central Board of Excise and Customs, earlier this month, recorded its August (for the month of July) GST collection at Rs 1.43 lakh crore, slightly lower than the Rs 1.48 lakh crore for July.

The finance ministry credited this as a “clear impact” of the compliance measures taken by the GST Council. Better reporting coupled with economic recovery had contributed to the positive trend in collections, it said.

According to ICRA Ltd.'s Chief Economist Aditi Nayar, India's annual GST growth rate for August remained at 28%. "September, too, will see over 20% annualised growth before it tempers to 12-15% by the third quarter of this fiscal," she said.

Even after accounting for higher inflation, GST collections have remained robust, said Soumya Kanti Ghosh, group chief economic advisor with SBI Research, pointing to a consumption impact led by economic revival.

According to him, the impact of high inflation on GST revenue would not be more than 8%, he told BQ Prime.

Economists that BQ Prime spoke with consider revisions to compliance enforcement, rate rationalisation, revival in consumption and economic activity, elevated inflation and increased imports to be pieces of the same pie. And this pie of GST collections will get bigger ahead of the festive season.

Since the inception of GST, Ghosh of SBI Research said the two series (CPI and GST) have moved more or less together prior to the pandemic. However, since May 2020, the gap between the two started increasing with a significant difference between the two being seen since mid-2021, he said.

"The year-on-year rate of growth of GST this year (from January through July 2022) has been around 27% while inflation-adjusted GST has grown by 19%,” Ghosh told BQ Prime. “So, nearly 8% of the increase in GST revenues can be attributed to higher inflation."

SBI Research's estimates of "inflation adjusted GST revenue" for FY23 shows the average monthly collection has been around Rs 1.20 lakh crore, which lends to a 26% jump in inflation-adjusted GST from the pre-pandemic level at Rs 95,000 crore.

India’s revenue from import of goods was 57% higher in August and those from domestic transactions, including import of services, was 19% higher than the corresponding month a year ago.

An increasing import bill also lends to an increase in GST collections. While this is not healthy, T Venkateswaran, partner with Price Waterhouse & Co., told BQ Prime it is a contributing factor (to the rise in collections).

Since June 2022, the IGST on imports has crossed the Rs 40,000 mark with August marking its third month above this limit.

Another key aspect that helped keep GST collections robust was the enhanced compliance, experts said.

Though changes due to increased compliance efforts cannot be quantified, but systemic efforts to plug leakages, widen the tax base, and enhance compliance enforcement have been at work over the last year, they said.

The continuous shift toward availment of credit based only on matching credits from the GST portal, too, has helped, said Venkateswaran.

Earlier, GST payers were availing credit even if there was a mismatch on the portal, he said. In the last few months, there has been much more rigour in the credit availment.

Citing an example of better compliance, Saloni Roy, partner with Deloitte India, highlighted the shifting of GST liability on online food aggregators, effective from January, which is helping to cover unregistered restaurants.

"Continuous detection of evasion of tax by way of curbing fake invoicing, mandatory Aadhaar authentication for applying refunds, and reaching out to digital service providers located overseas have also contributed to GST revenue," she said.

Roy also mentioned some other recent measures:

• Exemptions for goods as well as services, such as the levy on pre-packaged food items.

• Renting of residential dwellings to a business entity.

• GST levy on hospital room rentals above Rs 5,000 per day and on hotel rooms having value of up to Rs 1,000 per day.

The department has also recently announced compliance enforcement guidelines for field officers by spelling out the nature, conditions, and revised monetary thresholds for enforcement action.

In its latest move, the Central Board of Indirect Taxes and Customs last month released revised guidelines pertaining to issuance of summons and arrests under goods and services tax and revising monetary threshold for the prosecution, arrest and bail under Customs Act.

The upcoming festive season is a large consumption driver for all businesses and consequently, reflect on the GST collection in the coming months.

The full impact of the rate rationalisation measures effected on July 18 will also be seen in the coming months, as the collections are released with a lag of one month.

GST collection has been above Rs 1 lakh crore since October 2020 (except for May 2021 and June 2021) and since then, it has remained above Rs 1.3 lakh crore and would remain above this threshold, Ghosh of SBI Research said.

"Accordingly, the new aim could be achieving Rs 1.5-1.6 lakh crore every month," he said.