What led to the highest GST collection since rollout in April?

It was the highest monthly collection of GST since its launch in July 2017 and also marked an emphatic 15% growth over the previous year average.

May 11, 2019 1:28 IST | India Infoline News Service
Goods and Services Tax, GST
With overall GST collections for the month of April 2019 at Rs113,865cr, it was a record of sorts. It was the highest monthly collection of GST since its launch in July 2017 and also marked an emphatic 15% growth over the previous year average. IGST (arising from interstate sales) constituted nearly 50% of the GST Revenues in April 2019 even as CGST, SGST and levies accounted for the balance. The bigger question is what led to this sudden spurt in GST collections and whether the figure is sustainable? For example, the average monthly collection was Rs89,700cr in 2017-18 and Rs97,100cr in 2018-19. For the fiscal year 2019-20, the GST collections will have to average nearly Rs120,000crore per month to reach the full year target of GST collections overall.

GST Upward Movement
Chart Source: Bloomberg
What triggered the sharp rise in GST collections in April 2019?
Broadly there were five factors that triggered the sharp rise in GST in April. Normally, the months of March and April have been good months for tax collections, and hence a sustainable figure may be more useful.
  • The sharp rise in GST revenues in April can largely be attributed to lag reporting of the year end numbers. Normally, the invoicing and realization process takes about 30-45 days and hence most of the actual sales done from February 15th onwards would get bunched up in the month of April. This trend was visible in the previous year too and one will have to wait for the trend to sustain in the coming months.
  • The lower rates of GST on a plethora of consumption products have been instrumental in better compliance despite the temporary hiccups in revenue flows. With more than 72 lakh GST-3B Summary Returns being filed in the latest year, there is a clear shift towards greater compliance and inclusion. The GST Council’s data mining approach has also helped in the process.
  • The GST Council had given a longer compliance time frame for GST filers to file and pay pending GST from July 2017 onwards where it had either been unpaid or unfiled. This also led to a surge in back-ending of GST payments which got reflected in the April 2019 collections.
  • Evasion has been made tougher in case of GST in a number of ways. Firstly, the launch of the technology backbone in the form of GST Network has already improved compliance. Secondly, the use of e-way bills has substantially reduced the leakage of GST revenues in the movement of goods across India. Thirdly, the formal understanding between the Income Tax department and the GST Council allows for a better quality check and cross verification of income data. This has plugged evasion of GST in the last few months.
  • The launch of GST-based funding for SMEs has led to a sharp increase in compliance among the small and medium enterprises. Government has facilitated funding for SMEs purely based on approved GST returns which make the process simpler and compliance more significant to the businesses.
Challenges for sustaining GST collections
  • As we mentioned earlier, the monthly average GST collections need to be closer to Rs120,000cr to meet the annual target. For April, the GST collections are still 6% short of that target. There are some key challenges to sustaining GST.
  • In the last two years there has been a marked drop in GST collections post July and that is something we need to be cautious about before celebrating peak collections in April.
  • Economists have expressed concerns that higher GST collections are not borne out by a sharp rise in GDP growth or a quantum improvement in total sales of Indian companies or profits of these companies. That raises doubts over its sustainability. 
  • For the central government, the GST flows will be net of compensation to states, which has risen by 20% last year. With 3.4% fiscal deficit, GST may have to work a lot harder!

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