Precipitous 80-90% fall in states' April GST collections; Centre may see massive drop

KEY HIGHLIGHTS

• Assam, West Bengal and Andhra Pradesh GST collections plummet by 80-90% in April
• Small businesses deferred tax filing due to uncertainty and to conserve cash
• Centre's net April tax collections after refunds could be Rs 45,000-55,000 crore
• Trade and businesses generated just 67.47 lakh e-way bills on April 1-27 against 4.06 crore in March

Early bird numbers suggest coronavirus-afflicted lockdown has slashed April GST revenue of states such as Andhra Pradesh, West Bengal and Assam by as much as 80-90 per cent. Nationwide GST collection numbers slated to be declared on May 1 are likely to mirror the impact on states' finances by and large.

Nationwide trend in generation of e-way bills also points to a sharp drop in GST collection. Trade and businesses generated 67.47 lakh e-way bills between April 1 to 27, barely 17 per cent of the 4.06 crore e-way bills generated in March, 2020, according to Goods and Services Tax Network (GSTN) portal.

Most economic analysts presumed 30 per cent of the economy was still functioning. But with Centre, states and local administration completely out of sync with each other, the gash in the economy is clearly far deeper than imagined. "We have seen 80 per cent drop in our revenue in the month of April," Assam Finance Minister Himanta Biswa Sarma told BusinessToday.In.

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Tax experts say hilly states, in particular, would be worst affected as they earn a vast majority of their revenue from tourism and hospitality.

States' own taxes levied on items such as diesel, petrol and liquor constitute 30-50 per cent of the total revenue. State sales tax/VAT, now replaced by the GST, constitutes almost half of the total own tax revenue of states. As sale of liquor is not allowed during lockdown and cargo movement by road is very limited, states are expected to be hit hard on these revenues as well.

While minimal business activity is the key reason for low collection, many small businesses are learnt to have deferred tax filing in view of looming uncertainty and the need to conserve cash. It may be noted that government has extended the deadline for filing GST returns due in March, April and May for small businesses with annual sales of less than Rs 5 crore to June 2020.

Assam Finance Minister Sarma, however, termed April collection trend as aberration as people stayed inside their homes in the wake of coronavirus outbreak. Further, he said that finances of various states would come under stress but degree of severity would vary depending on expenditure towards containing the spread of the deadly virus and expenses incurred on supporting migrant workers.

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Assam had mopped up Rs 932 crore in the month of March 2020 as against Rs 956 crore in the same month last year, registering a decline of 3 per cent. However, April collection is closer to Rs 200 crore instead.

West Bengal and Andhra Pradesh have also seen GST collection crash 80-90 per cent in April. A source in West Bengal tax department said that the state may not be able to reach even Rs 300-350 crore mark compared to its March 2020 collection of Rs 3,582 crore.

A senior GST officer in Andhra Pradesh government said that the state's collection had dropped 90 per cent in April as service sector was totally closed. Andhra Pradesh had collected Rs 2,548 crore in GST during March 2020.  

"Deferment of filing of tax returns by MSMEs, reduced level of economic activity, and fall in imports could lead to an overall fall in tax collections by 35-40 per cent. It would not be unreasonable to assume that Centre's net tax collections after sanctioning of tax refunds for April could be in the range of Rs 45,000 crore to Rs 55,000 crore," says Rajat Mohan, senior partner at AMRG Associates.

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"Nearly 70 per cent of indirect tax revenues are contributed by big conglomerates that are supported by state of the art tax technologies permitting them to file tax returns even in the circumstances of lockdown. These businesses are under a strict mandate from senior leadership to compulsorily observe tax compliances even in the circumstances of extreme emergencies," he adds.

Fall in e-way bills also indicated a significant reduction in economic activity. An e-way bill is an electronically generated document for moving goods worth Rs 50,000 or more from one place to another, either inter-state or intra-state. The generation of e-way bill helps tax authorities keep track of goods and thus contain evasion.

Economic activity has come to a halt following the imposition of 21-day lockdown on March 25 and its subsequent extension till May 3. Services sector, which accounts for 60 per cent of the GDP has almost stopped, resulting in sharp fall in tax collection. Manufacturing sector which contributes nearly 23 per cent of the GDP has also come to a grinding halt barring essential items such as processed food and pharmaceuticals.

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