Better compliance, inflation-induced higher nominal GDP (Gross Domestic Product) and higher imports helped in achieving higher Goods & Services tax (GST) collections from 2020 to 2022, India Ratings & Research (Ind-Ra) said.

The government will release the GST collection figure for September on Saturday and it is expected to show similar buoyancy. For six months till August, the monthly GST revenues have been more than the ₹ 1.4 lakh crore mark.

In a research report, the agency estimates the overall gain in GST collections due to improved compliance is 28bp (100 basis points mean one percentage point) of GDP during 4QFY21 (January-March 2020-21) -1QFY23 (April-June, 2022-23) over 3QFY18 (October-December 2017-18) - 4QFY20 (January-March 2019-20). However, “if we discount for the higher GST collected due to higher imports, then the overall collection gains due to improved compliance works out to be 11bp of GDP during the same period. As some of the new steps to check tax avoidance came into effect from January 1, 2022, Ind-Ra believes the GST collections in the near term will benefit further from the improved compliance,” the research agency said.

The GST Collection has been over ₹ 1lakh crore since October 2020, except for June 2021. The Government has maintained better reporting coupled with economic recovery has a positive impact on the GST revenues consistently.

However, Ind-Ra says higher GST collections should not be construed as indicating a rise in consumption demand. In real terms, private final consumption expenditure (PFCE; proxy for consumption demand) in 1QFY23 grew 9.9 per cent over 1QFY20, but in nominal terms, it grew 36 per cent during the same period. The real and nominal GDP during the same period grew 3.8 per cent and 31.4, respectively. “This suggests the surge in GST collections is more due to the higher inflation than higher consumption,” it said.

Further, it mentioned that with the easing of Covid-19 related restrictions, the consumption demand is expected to normalise, but the ‘K-shaped’ recovery is not allowing the demand to become broad-based. Thus, “while there is visibility in growth of high-ticket consumption goods, items of mass consumption are still suffering. Such a recovery is also not helping wage growth, especially of the population that is part of the lower half of the income pyramid,” the research agency said.

On imports, the agency said that as India is a net commodity importer and its dependence, particularly on oil is high, the surge in global commodity prices means a higher import bill. 

With the hardening global commodity prices since October 2020, they began to show up in India’s import bill from 4QFY21. Concomitantly, the IGST collections started reflecting it. Barring 1QFY23, the IGST collection growth has been higher than the GST collections since 3QFY21. In fact, the share of IGST in GST has increased in recent quarters.

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