Covid, Economy and GST

Dr Sanjiv Agarwal

Dr Sanjiv Agarwal

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The major reasons for rising GST collections in last 3 months can be attributed to economic recovery in many sectors

The 2020 has been a recessionary year unlike earlier ones, perhaps the longest one but not due to economic reasons.

federalism testThe sources of recession or slow down is neither financial nor economic one but the economy got adversely affected by Covid-19 pandemic, locally as well as globally.

It destroyed social and productive capital badly, also resulting in human crises.

The capital markets too reacted globally tanking with rise and spread of Covid and going up on hopes of vaccine.

With the improved trends in agricultural production, manufacturing sector, consumption, GST collections etc, it is most likely that economy will recover from this year itself but India will have to ensure that such recovery is on a sustainable path.

The Union Budget 2021-22 is just three weeks from now and offers an great opportunity for comprehensive and objective steps towards this end.

The National Statistical Office (NSO) has now predicted in advance estimates that India’s GDP may contract by 7.7% in financial year 2020-21, biggest contraction since 1952. This is close to Reserve Bank’s estimate of 7.5%. Also, Government spending is expected to grow with revival of sectors like construction and manufacturing.

For next fiscal (2021-22), it may grow in the range of 8-11 percent as estimated by various agencies. Indian recovery since June, 2020 has been ‘V’ shaped with sustained improvement is key indicators.

As per Finance Ministry, the continuous QoQ growth endorses the strength of economic fundamental to sustain a post –lockdown ‘V’ shaped recovery.

The Government is undertaking preparations of a mass vaccination drive. Covid vaccine is likely to act as a catalyst as post vaccination, resumption in economic activities is expected to grow faster.

However, while the vaccination is drawing closer, continued observation of ‘Covid-appropriate’ behaviour, caution and surveillance is crucial.

GST has completed 42 months and there have been many ups and downs during this period of learning, improving and settling down.

The GST collections could breach Rs. 1 lakh crore mark many times but not much beyond this figure. The highest collection so far has been only in December, 2020.

During 2020, more than three-fourth of the year was disturbed on account of Covid-19 pandemic in India and elsewhere. Collection figures dwindled to below 35,000 lakh crore with negative growth of -24 percent, and then picked up to over Rs. one lakh crore per month on economic revival and sustained consumption levels.

The recent recovery in October-December, 2020 indicates that our economy is more resilient then expected, could recover despite lower fiscal stimulus for country of this size and that economy was slow even in pre-covid times. Also, India has recovered better than many other countries.

However, India will have to find solutions to challenges such as stagnant exports, jobs, quality of education, infrastructure development and so on.

gst

The GST revenue in December, 2020 saw the highest ever collection. The gross GST revenue collected in the month of December 2020 is Rs. 1,15,174 crore of which CGST is Rs. 21,365 crore, SGST is Rs. 27,804 crore.

Likewise, IGST is Rs. 57,426 crore (including Rs. 27,050 crore collected on import of goods) and Cess is Rs. 8,579 crore (including Rs. 971 crore collected on import of goods).

If one looks at the trend, collections declined over previous months during June- August, 2020. The total number of GSTR-3B Returns filed for the month of November up to 31st December 2020 is 87 lakhs.

The GST revenues during December, 2020 have been the highest since the introduction of GST and it is the first time that it has crossed Rs. 1.15 lakh crore. The highest GST collection till now was Rs. 1,13,866 crore in the month of April 2019.

The highest tax collecting states are Maharashtra, Karnataka, Tamil Nadu, Uttar Pradesh and Haryana.

It may be noted that if India is able to sustain this one lakh plus revenue, it can expected that revenue will increase in coming months, once tourism, travel hospitality and entertainment sectors open up, which are presently closed.

In December, all the segments of GST collection yielded more in December compared to November. For instance, CGST collection rose to Rs 21,365 crore as against Rs 19,189 crore, and SGST mop-up increased to Rs 27,804 crore as against Rs 25,540 crore.

Also, integrated GST receipts were more at Rs 57,426 crore as against Rs 51,992 crore, and compensation cess at Rs 8,579 crore as against Rs 8,242 crore.

Around 11 states and Union Territories posted a double-digit expansion in collection on account of domestic transactions in December, while some including Chandigarh, Delhi, Himachal Pradesh, and Goa witnessed a decline.

GSTThe major reasons for rising GST collections in last 3 months can be attributed to economic recovery in many sectors across the board and drive against tax evasion backed by data analytics using Artificial Intelligence (AI).

GST e-invoicing which was made applicable w.e.f. 01.10.2020 has completed three months whereby more than 37000 tax payers generated more than 16.80 crore invoices (IRNs).

This also signals movement of goods including agricultural production.

The Government has reduced the aggregate turnover cut off to Rs. 100 Crores per annum for generation of IRN by the tax payers from 1st January 2021.

The economic recovery is also supported by e-way bills to the tune of 6.42 crore in December, 2020. This indicates increase in movement of goods, industrial production and demand / consumption.

Infact, it also demonstrates higher tax compliance which is reflected in tax collections. In last two months, about 200 arrests have been made including 6 professionals.

There are about 2000 cases booked on 7000 + fake entities. The taxpayers are thus, getting exposed and a message is sent down the line that stern action is in store for tax evaders.

Now, both, direct and indirect tax wings are also acting in tandem for effective crackdown. Vigil on fake or unmatched input tax credit is also helping in rise of tax revenue.

There is a thus a dual strategy working –honour the honest and expose the unscrupulous. With Artificial Intelligence in place, such tax evaders will be subjected to scrutiny both under indict and direct taxes.

W.e.f. 1st January 2021, many firsts have being started in GST regime including mandatory e-invoicing for class of taxpayers, stricter ITC rules, QRMP scheme etc.

While next GST Council meeting is not yet decided, it may discuss long pending issues of GST rate rationalization and inverted duty structure. GST compensation issue stands settled for the time being but it needs to be sorted out for further eventualities.

Further, it now appears that GSTN is using data analysis for good of nation and against tax evaders.

A lot more needs to be done towards reducing number of rates, broadening tax base, pruning exemptions that block the supply chain, bringing electricity / gas / fuel / real-estate etc. in GST net.

Central Government has further released 10th instatement of Rs. 6000 crore to states to meet GST compensation cess shortfall, total amounting to Rs. 60,000 crores now. This is part of special borrowings window of Rs. 1.10 trillion of shortfall to be compensated to States.

Budget session of Parliament is likely to commence on January, 29 and conclude by April 8, 2021 with Union Budget 2021-22 being presented on 1st February, 2021.

Today in post Covid era where world and India is struggling with corona and now, new strain, even 2021 looks hazy, with hope of vaccine.

What is needed is a strong and continuous dose of fiscal stimulus across the board and to specific sectors, keeping in mind, both, short and long term goals of economy.

The Union Budget should try to ensure balanced economic growth of all sectors of economy and society, besides, squeezing the inequalities.

Also Read: Economy Contraction: Do Not Blame Everything on the Pandemic

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Dr Sanjiv Agarwal

Dr Sanjiv Agarwal

The writer a practicing Chartered Accountant has authored more than 35 books on taxes, corporate laws, corporate governance / accounting standards / capital market.

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