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View: GST revenue - Ending the year with a bang!

View: GST revenue - Ending the year with a bang!

View: GST revenue - Ending the year with a bang!
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By Najib Shah  Apr 5, 2022 1:00:03 PM IST (Published)

GST collection in March 2022 was good. The revenue touched a record Rs.1.42 lakh crore. This is the highest GST collection ever, breaching the Rs 1.41 lakh crore collected earlier in April 2021.The grand total for the financial year being an impressive Rs.14,89,905 crore.

The financial year 2021-22 has ended with a bang as far as far revenue collection from taxes goes. This is remarkable given the fact that this has been a challenging year bordering on the dismal. The long shadow of the pandemic, joblessness, inflation, rising oil prices, and the outbreak of the much-predicted Russian-Ukraine conflict, have kept the economy in a constant state of uncertainty.

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Despite all this gross GST collection in March 2022 was good. The revenue touched a record Rs 1.42 lakh crore. This is the highest GST collection ever, breaching the Rs 1.41 lakh crore collected earlier in April 2021. The grand total for the financial year being an impressive Rs 14,89,905 crore.
The single largest component continues to be IGST. This is not unsurprising given the fact that GST is a destination-based tax. The import component of IGST has been steadily rising. Though welcome as a significant contributor to revenue, this is a matter of concern. Exports have done well and India has touched a record $417.8 billion merchandise goods export mark. However, the trade deficit also has been increasing. The trade deficit at the end of February was touching USD 21 billion-the highest in a very long time.
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The surge in imports, however, is an indication of increased economic activity in the country. It is an indication of the release of the long pent-up demand. This is also indicated by the number of e-way bills generated in February—they exceeded 6.91 crore. The IHS Markit manufacturing PMI increased to 54.9 in February 2022 again suggesting increased factory activity. The Services PMI was at 51.8 in the same period-lesser than market expectations, but higher than the previous month.
The performance of the eight core sectors in February 2022 improved to 5.8 percent up from 4 percent of the previous month. This was of course supported by the negative base of last year (minus 3.3 percent in February 2021). Coal, natural gas, refinery products, steel, cement, and electricity being the sectors that performed well.
Net direct taxes collections touched Rs.13.63 lakh crore by mid-March. This is growth by a phenomenal 48.4 percent. Corporation tax being the major contributor is again an indication of increased economic activity in the country. More importantly, it is an indication of the close coordination between the apex boards of indirect and direct taxes.
The increase in revenue has had a multiplier positive impact. It has meant that the central government’s fiscal position is robust. The fiscal deficit during the period April-February 2022 period has been Rs 13.2 lakh crore. In effect, it has been checked at just under 83 percent of the revised estimate -again thanks to the robust revenue collection. The larger than anticipated transfer of dividends from the RBI has also helped.
The focus on asset creation has helped. The result has been an increase in capital expenditure. The central government’s market borrowing in the eleven-month period April-February has also been lesser by nearly 36 percent. This again is the direct consequence of the robust revenue collection.
Data shows that the top Indian companies have in the period ending December 2021 made over 100 percent profit when compared with the same period in the pre-pandemic year. This again is yet another reason for the spurt in revenue-both indirect and direct.
The stock markets have been doing well. The flow of foreign funds is a sure indicator of confidence in the Indian economy. Foreign Exchange reserves at USD 622 billion are a matter of comfort.
The increased spending, coupled with the increase in fuel prices and general disruption of supply chains has resulted in inflation. The CPI retail inflation has breached the 6 percent mark. The RBI has expressed confidence that there is no cause for serious concern. Paradoxically inflation has also contributed to the increase in GST revenues since all the rates are ad valorem.
Going forward the robust revenue performance is likely to continue. One is assuming of course that the dreaded third wave has abated and that no further waves await us. The Russian-Ukraine conflict persists. The longer the war, the greater is the possible disruption to global economies and to India.
There are some key issues that need to be addressed in the new financial year. The deadline for ending GST compensation to States for any shortfall from a 14 percent assumed growth is fast approaching. The guarantee ends in June 2022 and a decision needs to be taken fast. The report of the Karnataka Chief minister headed by GoM on the rationalisation of GST structure is still awaited.
The effort should be to identify pain points and address them. These include the creation of the long-delayed dispute resolution institutions – a GST Tribunal and a national advance ruling authority. A decision regarding initiating the process of expanding the GST tax base with the inclusion of some petroleum products has been long overdue.
The GST law has largely settled. It is important that GST laws and rates are not changed too often. They cause avoidable uncertainty. The focus should continue to be on easing compliance and effective enforcement.
— Najib Shah is the former chairman of the Central Board of Indirect Taxes & Customs. The views expressed are personal.
Read his other columns here
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