The Goods and Service Tax (GST) collections in July — concerning largely June transactions — came in at Rs 87,422 crore, or 86% of the collection in the corresponding month a year ago, indicating that large parts of the economy are back on their feet, after the severe disruptions caused by the lockdown. Of course, the July mop-up is lower than Rs 90,917 crore collected in June, but as the government itself pointed out, “a large number of taxpayers also paid taxes pertaining to February, March and April 2020 during June”, taking advantage of the compliance relief provided due to Covid-19.
In July, the revenues from import of goods were 84% and the revenues from domestic transaction (including import of services) were 96% of the revenues from these sources during the same month last year.
GST collections had nose-dived to a record low of Rs 32,294 crore in April, which was down 72% on year, but then recovered to Rs 62,009 crore in May.
Of course, the current rate of GST collections is far below the targets set, not to mention the initial expectations of a revenue jump when this comprehensive indirect tax was introduced in FY18. The revenue slump is making it difficult for the Centre to meet the obligation of compensating the states for their ‘revenue shortfall’. Under GST law, states are guaranteed to be compensated bi-monthly for any loss of revenue in the first five years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14% annual growth in GST collections by states over the base year of 2015-16.
The Centre had released over Rs 1.65 lakh crore in 2019-20 as GST compensation to states, even as the amount of cess fund collected for this purpose during the year was Rs 95,444 crore. Besides surplus from cess pool of previous years, Rs 33,412 crore of unutilised I-GST collections for FY18 was used to compensate the states in 2019-20.
With the gap between the compensation requirement and the cess fund likely to widen considerably in the current fiscal year and the Centre armed with a legal opinion from the Attorney General that it is not under any statutory obligation to make up from its coffers any shortfall in GST revenues of states, the GST Council at its next meet is likely to consider various options, including using the borrowing route to give relief to states.
According to a government statement, of the GST collections in July, “CGST is Rs 16,147crore, SGST is Rs 21,418 crore, IGST is Rs 42,592 crore (including Rs 20,324 crore collected on import of goods) and cess is Rs 7,265 crore (including Rs 807crore collected on import of goods).”
The government has settled Rs 23,320 crore to CGST and Rs 18,838 crore to SGST from IGST as regular settlement. The total revenue earned by Central government and the state governments after regular settlement in July 2020 is Rs 39,467 crore for CGST and Rs 40,256 crore for the SGST.
“While the overall GST collections for the month is heartening , the collections in many of the major states coming close to last year’s collections indicates that the recovery process has slowly started with the unlockdown process underway in these states. The progressive unlockdown steps taken in June are reflected in the improvement in GST collections for July although the figures also includes some transactions in respect of earlier months,” said MS Mani, Partner, Deloitte India.