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Robust GST revenues indicative of growth in Indian economy

The robust GST collections for a consistent period of 6 months are one of the key indicators showcasing that there has been a very low impact of inflation on the Indian economy.

Robust GST revenues indicative of growth in Indian economy
GST collection in August soared 28 per cent on-year to Rs 1.43 lakh crore.

– By Saurabh Agarwal

The timing for penning down our thoughts on growth in GST collections in the country couldn’t have been better when India emerges as a fifth largest economy in the world. The robust GST collections for a consistent period of 6 months (with April 2022 recording the highest collections in this fiscal year) are one of the key indicators showcasing that there has been a very low impact of inflation on the Indian economy.

The Ministry of Finance has recently released the gross GST collections made in August 2022. As per the press release, the collections have risen 28 per cent on year-on-year basis to Rs 1.43 lakh crore. The States / Union Territories of India like Mizoram and Ladakh, have recorded the highest growth in collection with 73 per cent, and 34 per cent respectively. The sharp increase in GST collections in these areas are indicative of increased consumption of goods/ services in these areas, which in turn can be said to be indicative of development in these regions. The increase in collections is due to the various measures adopted by the Government such as automation of GST compliances, extension of e-invoicing mechanism to increase the taxable base and robust administration by the tax department.

The GST Council, its 47th meeting, which coincided with the 5th year anniversary, had recommended rationalisation of GST rates and had also recommended withdrawal of exemptions on certain goods. While the intent of the changes was to reduce and correct the inverted duty structure and allow credits on inputs and input services on goods which were previously exempted, the change in GST rates has also pushed collections in the last month. The GST Council is likely to take decisions on further rationalisation of GST rates and the applicable rate on online gaming in upcoming council meetings.

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Also, with the COVID wave stabilising, there has been a rise in the demand for various goods/ services leading to signs of economic recovery. At this juncture, it is important to highlight that the steps taken by the Government for ‘Make in India’ in the form of introduction of Production Linked Incentive (PLI) schemes, focus on deep localization within the country are also one of the contributors to increasing GST collections. PLI schemes introduced by the Government in sectors such as mobile phones, automobile, white goods, textile, food products, etc. require significant investment in capex for next 3-5 years by the successful applicants of the said schemes. Any capex investment is typically subjected to levy of GST at a median rate of 18 per cent.

However, it must be kept in mind that external factors such as the Ukraine war, rise in inflation have also led to increased price of commodities, which has also contributed to higher GST collections. When we look at the collections of compensation cess, which is levied on motor vehicles, aerated drinks, etc. there appears to be steady decline. While the collections in June 2022 stood at Rs 11,018 crore, the collections in July and August 2022 were Rs 10,920 crore and Rs 10,168 crore respectively, thereby showing the demand on high end goods have gone down due to rising inflation on daily use goods. That being said, with the festive season around the corner, the demands are likely to be robust, keeping up the pace in the collections of GST in the coming months. Further, the steps taken by the Indian Government to promote domestic manufacturing in India would have a far reaching impact on the Indian economy leading to likely consistent pace in GST collections.

(Saurabh Agarwal is the Tax Partner at EY India; and the co-author of the article is Rajat Gupta, Manager, EY India)

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