With the lockdown hitting transactions as well as tax payments by businesses in the last week of March, the government’s gross GST revenue in April could fall as much as 30-40% of the average monthly revenue collections achieved in FY20, which was around Rs 1 lakh crore, analysts said. Large companies, especially from the fast moving consumer goods (FMCG) segment, are likely to rescue the mop-up to some extent, they added.
The situation could persist in April too, hitting May collections. Currently, collections are only a fifth of normal, a state government functionary told FE.
FMCG firms have seen minimal impact on sales and would also file monthly returns before the original deadline of April 20, even though firms above Rs 5-crore turnover have been provided with an additional 15-day period for compliance, sources involved with compliance at some of these companies said. Besides, other major conglomerates with group companies that have managed to escape much harm are likely to contribute as well.
Tax consultants involved with other large conglomerates with whom FE spoke, however, said that not only the return filing is on target, the tax payout too is not likely to be substantially lower than the average monthly quantum. The exception to this is one of the white goods makers, whose sales witnessed a completely slump in the last week of March. However, the firm had normal business and sales in the previous three weeks of the month.
The GST Council has estimated that around 7,000 GST-registered firms contribute over 90% of the revenue. Other smaller firms, which constitute over 1.2 crore GST taxpayers, are likely to defer their compliance to the last week of June, as allowed by the government without any interest, penalty and late fees as a relief measure.
A tax practitioner who deals with many small businesses said such businesses would fully utilise the compliance relaxation to tide over any cash flow issues, and some of them might struggle with collating invoices for filing returns due to lack of technological support like cloud computing. The share of tax revenue from firms with turnover below Rs 5 crore is likely to be minimal, he added.
“Although the economy is under lockdown, the tax and regulatory division of big businesses can access real-time transactional data from the cloud. Cloud computing technologies permit such professionals to work anywhere, anytime and file taxes on time,” Rajat Mohan, senior partner at AMRG & Associates, said.
Another source of GST revenue that is likely to be completely decimated is integrated GST on imports. This component usually contributes about a fifth of monthly revenue, but has been on decline for several months due to slowing economy and consumption. IGST on imports recorded its lowest-ever level in March. With large part of world in different degrees of lockdown, the component is slated to slump to a new low, experts said.
Drying up of tax from small businesses and imports would somewhat be mitigated by FMCG companies as they have not only seen a big jump in sales due to panic buying in the last week of March, but their manufacturing units have largely remained operational as well due to high level of automation, tax consultants with knowledge of the compliance process for these firms said. The other logistical problems related to movement of goods was also rather limited for these companies as their products were categorised as essential.
“The only factor that has stemmed, to a certain extent, the fall in GST revenue is the increased demand in the consumer staples space, courtesy the panic buying resorted to by most consumers. The logistics back-bone supporting the consumer staples space was severely impacted in initial days of the lockdown leading to delay in deliveries, in spite of which FMCG firms have seen minimal impact on sales. As a result, GST revenue at least from this sector is likely to remain unaffected,” said Himanshu Relan, partner – GST at Nangia & Co.