Also, the weighted average GST rate is significantly below the revenue neutral rate estimated before the tax's launch, with a series of tax rate cuts by the GST Council widening the gap.
Goods and Services Tax (GST) collections on a gross basis in March came in at Rs 97, 597 crore, an 8.4% fall over the corresponding month last year, as revenue from domestic and import transactions slumped and fewer taxpayers filed returns compared to previous months. Also, the Centre’s own collections for the financial year (FY20) missed the revised estimate (RE) by Rs 20,747 crore or 3.4% at Rs 5.92 lakh crore.
Gross GST collections during the whole of FY20 (April-March) were Rs 12.2 lakh crore, up just 3.8% year-on-year. In FY19, the collections had risen at a faster rate – the monthly average mop-up in the year was up 6% over that in the eight-month period in FY18 (August-March) .
Of course, the GST revenue growth is not only below the optimistic projections made before the launch of this comprehensive destination-based tax on consumption, but also trails the immediate-past trend growth rates of various taxes subsumed in GST. The 14% growth guaranteed to states in their GST revenue looks too much and the compensation kitty is increasingly falling short.
The March collections correspond to transactions in February; March is the third month in FY20 when GST revenue shrank year-on-year. While growth in mop-up from domestic sales in most months of FY20 had been mitigating the falling revenue from imports, March saw both numbers shrinking by 4% and 23% respectively.
The states’ own GST revenues — SGST receipts minus the compensation from the Centre — were short of the aggregate protected level by Rs 1.5 lakh crore or 23% in the financial year that ended on Tuesday (FY20). As against this, the compensation funds collected in the year was only Rs 95,768 crore.
In the April-November period last fiscal, the states were distributed over Rs 1 lakh crore as compensation for their GST revenue shortfall. The Centre has used about Rs 28,000 crore of the Rs 47,271 crore absorbed by the Consolidated Fund of India in FY18-FY19 period as ‘surplus’ revenue from the GST compensation cess to reduce the state governments’ GST revenue shortfall in FY20.
“For the full financial year, 2019-20, the GST for domestic transaction has shown a growth rate of 8% over the revenues during last year. During the year, GST from import fell down by 8% as compared to last year. Overall, gross GST revenues grew at 4% over the last year’s GST revenue,” the government said in a statement.
The compliance level also fell in February with only 76.5 lakh eligible taxpayers filing GSTR-3B returns by March 31. The number has been close to 80 lakh or more in the last three months.
As reported by FE earlier, nearly all large states saw a doubling of the gap between SGST and protected revenue in FY20 from the FY19 level. In the April-February FY20 period, the highest deficit was reported by Punjab (46%), followed by Kerala, Karnataka, Gujarat, Bihar and Madhya Pradesh.
The protected revenue refers to the constitutional guarantee provided to the states that their GST collection would grow 14% year-on-year. This is ensured through compensation cess fund, made out of the proceeds from assorted cesses.
As per the relevant law, the Centre could make payments only from the compensation proceeds generated out of cesses levied on items under GST, for bridging the states’ revenue shortfall. “Whatever money comes in that (compensation) fund, only that money can be paid (to states). Now if there is a shortfall (against states’ guaranteed revenue growth of 14%) which is more than what could be overcome by compensation fund, then the GST Council will take a decision on what measures can be taken to either increase the cess amount or consider the rates or take any other measure,” finance secretary Ajay Bhushan Pandey had earlier said.
With the Covid-19 pandemic wreaking havoc across the economic value chain cutting across sectors, the GST receipts in FY21 are likely to be hit hard. There are proposals before the GST Council for a fresh round of GST rate cuts, given the need to give impetus to businesses in the current difficult times.
While the GST as a comprehensive indirect tax that militates against cascading of taxes was stated to improve revenue buoyancy and collections, it hasn’t really lived up to that promise yet. Analysts ascribe the tax’s under-performance to its imperfect structure.
There are key exclusions like petroleum products and real estate, while the tax slabs are multiple and are fraught with inverted tax structures. The tax authorities have been less than successful in plugging evasion and ending practices like excessive/fraudulent use of input tax credits by a section of taxpayers to meet their tax liability. Even 23 months after the tax’s launch, a foolproof system of returns filing that allows matching of invoices uploaded by the suppliers and buyers continues to be elusive.
Also, the weighted average GST rate is significantly below the revenue neutral rate estimated before the tax’s launch, with a series of tax rate cuts by the GST Council widening the gap.
Pratik Jain, partner and leader of indirect tax at PwC India, said: “While there could be some impact of slowdown that got triggered due to onset of Covid-19 situation (though the impact of lockdown will be reflected in April 20 numbers), there is around 7% reduction in filing of GSTR 3B over last month. It seems that many businesses may not have been able to pay GST because of liquidity issues being faced after the lockdown. As second half of March 20 has been significantly impacted due to Covid-19 outbreak, the collections in April 20 is likely to be substantially lower. In addition, industry has demanded for moratorium in GST payments (as of now deferment of 3 months has been given to MSME sector only) and reduction in rates, which could have an impact as well. The impact on fiscal deficit for FY 19-20 will now have to be seen.”
“Due to country-wide lockdown amid Covid-19 outbreak, the returns for the month of March 2020 are still pending, which has adversely impacted the revenue collections. It is noteworthy that the import of goods has also shown a negative growth of 23% as compared to March 2019. It has also played a crucial role to push back the GST collections,” Vishal Raheja, DGM at Taxmann, said.