April-May collections less than half the target.
Faced with a big decline in revenues due to Covid-19 pandemic and the overall economic slowdown, the Good and Services Tax (GST) Council on Friday agreed to hold a one-agenda meeting sometime next month to discuss the ways to bridge the compensation fund shortfall, including borrowing from the market, to ensure states’ revenue is protected at the agreed-on growth rate of 14% per annum. The council would weigh the pros and cons of market borrowing, as well as to get into the nitty-gritty of such a mechanism and its legal tenability.
The Council also extended more relief to smaller taxpayers on late fee/interest related to filing of monthly returns and agreed in principle to continue with the process of correcting the inverted duty structure, which would also necessitate raising rates on some items.
An official said that gross GST revenue collections in the first two months of the current fiscal were just about 45% of the target. For the current fiscal, the gross GST revenue target (as per Centre’s budget estimate and states’ protected revenue) is Rs 1.21 lakh crore/month. GST collections on a gross basis in FY20 grew just 3.8% annually to Rs 12.2 lakh crore. The compensation cess fund proved to be grossly inadequate in the year. This is likely to be a bigger problem in the current fiscal year as states’ protected revenue is higher at Rs 63,720 crore per month from Rs 55,900 crore in FY20.
Addressing the media after the Council’s 40th session held via video conferencing, Sitharaman explained that the recent release of Rs 36,400 crore as compensation for the November-February period of last fiscal was enabled by the Centre addressing from its end the issue of re-distribution required of the funds accumulated in I-GST pool, prior to formula-based automatic sharing of the I-GST funds began among the Centre and states. Last week, in a move that surprised states, the Centre released pending compensation payments for the November-February period of last fiscal.
Prior to this, the total compensation paid for the first eleven months of last fiscal was over Rs 1.5 lakh crore while collections via designated cesses were just Rs 95,000 crore. The Central government has mobilised excess compensation funds from previous fiscal years (FY18 and FY 19) to bridge the gap to an extent.
Collections are seen to have nosedived in April owing to the Covid-19 lockdown, before showing a marginal improvement in May and a more pronounced one in June. Gross collections had come in at Rs 97,597 crore in March, which was 8.4% lower than 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 even the revised estimate (RE) by Rs 20,747 crore or 3.4% at Rs 5.92 lakh crore.
E-way bill generation on GSTN portal fell to less than 3 lakh-day in April, showing how badly the GST collections were hit by the lockdown. In the first week of June, daily e-way bills count rose to an average of 12.5 lakh, but it was still much lower than 16 lakh per day in June 2019.
Sitharaman said the council also in-principle resolved to continue with the process of correcting inverted duty structures across several industrial value chains and discussed such issues in the labour-intensive and complex textiles sector in particular. But it decided to defer any rate changes for this purpose to a later date, given that in a low-demand scenario like now, any rate hikes might not be in order.
Inverted duties occur when the finished products are subjected to lower duties than the raw materials and intermediate goods, in what could result in instances such as accumulation of input tax credits with the industrial segments, higher-than-justified refunds and even revenue drain for the government. Apart from the textiles-to-apparel industry, fertilizers, footwear etc. suffer from such anomalies, while in the mobile phones segment substantial correction of the problem has already been done.
The Council gave a host of reliefs to the taxpayer businesses, especially the smaller ones with turnover up to Rs 5 crore, in the form of waiver/reduction/capping of the interest/fees charged on late filing of returns. The move is intended to enable MSME units, which have been hit hard by the Covid-19 pandemic and the resultant lockdown, to get back to business in a hassle-free manner and help them overcome immediate working-capital and compliance issues.
As per the Council’s decisions, the interest on delayed filing of GST returns for February-March-April period has been halved to 9% for taxpayers with turnover up to Rs 5 crore, provided the returns are filed by September 2020. Also, the deadline for filing returns for May, June and July has been extended till September, without any interest or late fee. Further, no late fee will be levied for delayed filing of GST returns by registered entities with nil liability between July 2017 to January 2020. The late fee for non-filing of monthly returns for others has been reduced to a maximum of Rs 500 for July 2017 to January 2020 period.
In the Council meeting, the Centre gave a presentation to states on the challenges being faced on the GST revenue front and on the ways to address the issues. S Mani, partner at Deloitte India, said: “Providing compliance relief, even beyond September if required, to all businesses is essential at the present stage where the primary focus has to be on business revival and working capital management.”