Is the upsurge in GST collections likely to continue?

Despite the global slowdown, GST collections in FY 2019-20 witnessed steady growth and increased by approximately 4% in FY 2019-20 as compared to FY 2018-19 (see table below).

If one were to look at the revenue collection numbers of March 2020 on a standalone basis, the effect of coronavirus lockdown is evident as there was a drop of more than 9% as compared to the revenue collections in March 2019. The trend of lower revenue collections continued in the first few months of FY2020-21.

In fact, revenue collections dipped by 72% and 38% in the month of April and May 2020 respectively in comparison to the collections in April and May 2019.

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From June to August 2020, revenue collections improved steadily and were around 10% lower than those in the corresponding months of the previous year.

The increase in economic activity was also evident from the number of e-way bills generated in July 2020 (4.83 crore) as compared to July 2019 (5.21 crore), which showed that supply chains were back on their feet quickly.

September and October 2020 have witnessed an increase of 4 and 10% increase in revenue collections compared to the previous year.

Overall, GST revenue collections for April to October 2020 are approximately 20% lower than those in the corresponding period in 2019 - a much better outcome than many would have predicted six months ago.

The number of monthly GSTR 3B returns was 80 lakh in October 2020, compared to around 74 lakh in October 2019.

Given the surge in number of returns filed and the fact that there is a clear uptake in demand due to the revival of the economy as well as the upcoming festive season, it's not surprising that collections in October have exceeded Rs 1 lakh crore.

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One of the reasons for the higher number of returns could be the fact that the last date for claiming input credit for 2019-20 was September 30, and a lot of companies would have carried out a yearly reconciliation and asked their vendors to file returns or report missing transactions.  

Given the festivities and continued push in demand, the collections in November could also be robust. The question, however, remains as to whether this upsurge would continue in December and beyond.

While much of it would depend on how the COVID-19 situation pans out and whether the economic activity will continue unhindered, the increase in GST revenue collections augurs well for the government.

It gives the Centre some fiscal space to consider providing some more GST-related stimulus, particularly for MSMEs who have been hit the hardest during the coronavirus pandemic. Also, there could be a possibility of GST rate rationalisation in the next few months.  

It is important for the government to analyse the trends in GST collection data and align policies with the new normal. For example, given the clear upsurge in online sales, there is a need to encourage more people to use this platform for doing business.

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Currently, offline sellers with annual sales below Rs 40 lakh are generally exempt from GST but for online sales, businesses are required to mandatorily undertake GST registration irrespective of their turnover. This is a good time for the government to review these provisions, which may provide a greater boost to the economy.

With the introduction of e-invoicing from October 1 and the possible extension of the mechanism to smaller companies from January 1, 2021, tax leakages should also reduce over a period of time.

GST audits and scrutiny are picking up as well and with the increased use of technology, there is greater integration between direct and indirect tax authorities now. All these factors are likely to have a positive impact on GST collections over the next few years.

(The author is Partner and Leader Indirect Tax, PwC India.)