Govt. underscores signs of recovery; experts remain cautious
Revenues from the Goods and Services Tax surpassed ₹1.05 lakh crore in October, up 10% from a year ago, and the highest recorded since February 2020.
The government cited the GST inflows that crossed the ₹1 lakh crore mark for the first time in this financial year, as a ‘clear’ sign of a recovery in the economy after its 23.9% contraction in the first quarter of this year. However, economists and businesses are cautious about the sustainability of this trend.
Tax experts said the expected shortfall in GST compensation for States could be lower than the current estimate of ₹2.35 lakh crore, if this revenue momentum is maintained through the rest of 2020-21.
As per data released by the Finance Ministry on Sunday, the gross GST revenue collected in October was ₹1,05,155 crore, 10.25% higher than a year ago, and 10.1% more than the indirect tax revenue garnered in September.
“The growth in GST revenue as compared to that in months of July, August and September, 2020, of -14%, -8% and 5%, respectively, clearly shows the trajectory of recovery of the economy and, correspondingly, of the revenues,” the Ministry said.
Terming the surge in the GST kitty in October 2020 as ‘enthusing’, principal economist at rating agency ICRA Aditi Nayar said this was in line with the expectation of a build-up of inventories in anticipation of a robust festive season. However, she added, “We remain as yet unconvinced on the persistence of this trend after the festive season is over, after the pent-up demand is fulfilled.”
The uptick in October’s GST inflows could be attributed to the festive demand and input tax credits as well as other reconciliations that were due for businesses in September, said Abhishek Jain, tax partner at EY.
“If this level of revenues is maintained through the rest of 2020-21, we may see a reduction in the shortfall in GST compensation for States,” Mr. Jain said.
GST Cess collections, used to compensate States for switching to the GST regime, rose to ₹8,011 crore (including ₹932 crore collected on import of goods). This is over 5% more than a year ago and 12.5% higher than the previous month. The total revenue earned in October by the Central and State governments stood at ₹44,285 crore and ₹44,839 crore, respectively.
Among the States, Andhra Pradesh and Chhattisgarh recorded the highest 26% growth in GST collections in October year-on-year, followed by Jharkhand (23%) and Rajasthan (22%). Odisha clocked 21% growth as did the Union Territories of Jammu and Kashmir. The trend in the more industrially developed States was mixed, with 15% growth in Gujarat, 13% in Tamil Nadu and just 5% in Maharashtra.
October’s GST inflows must not be considered a return to normalcy for businesses, said the Consortium of Indian Associations, an umbrella body of micro, small and medium enterprises, stressing that these revenues normally relate to sales that occurred in September, when a majority of the economy, including public transport, were unlocked.
“Many companies raised sale invoices in September by pushing out their finished products which they had planned in March itself. We need to await data for November and December before we can confidently say the economy has rebounded to pre-COVID-19 days,” said K.E. Raghunathan, the consortium’s convenor.
October’s revenues from import of goods were 9% higher, while domestic transactions (including import of services) yielded 11% higher revenues, on a year-on-year basis.