After a fall, GST collections set to top ₹95,000 cr

Goods and Services Tax (GST) collections are expected to bounce back to 93,000-95,000 crore, and perhaps more, when returns for March 2018 are filed by April 20.

This is against the average of about ₹87,000 crore in the past five months.

Total GST collections — the sum of Central, State and integrated GST — have been on a rollercoaster since the new tax regime came into force in July 2017. After three months of robust collections – in excess of ₹90,000 crore each month – they dipped in the following two months.

Collections in December 2017, for transactions completed mostly in November, fell to ₹84,000 crore before improving to ₹89,300 crore in March. GST systems have now stabilised, businesses have better clarity of the tax regime, and the economy has readjusted after the disruption of the initial months.

GST rates underwent a major recalibration in October and November 2017: the list of items taxed at the demerit rate of 28 per cent was pruned to 50, and the rate on 178 items was cut from 28 per cent to 18 per cent. This contributed to unevenness in the collections.

There was also lack of clarity on the applicable tax rates and on the input tax credit mechanism; additionally, the level of demand in the economy was muted, tax experts explain.

Despite this confusion, returns filed in August, September and October signalled robust collections in the July-September quarter. But the returns filed in November for October transactions reflected a ₹9,200 crore fall in collections. In the following month, they fell another ₹2,200 crore.

There was uncertainty about rates, and people were not paying their taxes correctly, noted Sachin Menon, Partner and Head, Indirect Tax at KPMG.

Collections improved from December as rates stabilised and businesses gained a better understanding, he added. Fear of a crackdown on evasion as well as the imminent introduction of the e-way bill may also have improved collections.

Rush to claim credits

Tax collections for October and November fell as there was a rush to claim input tax credits, particularly transitional credit (or tax credit on stocks that businesses held prior to the GST rollout), said Bipin Sapra, partner at EY. Amid the confusion over tax liabilities, businesses were unable to fully utilise input credit in the first three months, when there were also restrictions on claiming transitional credit.

These claims, bunched in the October-December quarter, depressed collections for those months. But with claims relating to the first three months having eased off, most input tax credits claims are current.

Rules on capital goods

A change in the rules for claiming input credit on capital goods also influenced collections. In the Central excise/CenVAT regime, businesses could claim credit for only 50 per cent of taxes paid in the first year, but under GST, businesses can claim 100 per cent credit in the first year. They could also claim 100 per cent as transitional credit.

Additionally, in the early months, refund of excess tax paid were held back; refunds and adjustments for excess tax paid began around December.

The fluctuations in collections may have been sharper had it not been for the festival and wedding season demand as well as year-end purchases. November numbers tend to be bad, said R Kavita Rao, professor at the National Institute for Public Finance and Policy.

December tends to be better for indirect tax collections. That explains why returns filed in January showed a revival in collections. She expects collections to improve gradually as compliance improves.

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