Revenue repercussions: on GST revenue trends
Festive season GST receipts hold a critical signal for growth
Goods and Services Tax (GST) revenue trends have been considerably wobbly this financial year, even as three of its seven months so far have recorded among the highest collections from the indirect tax. While the year started with a bang as April clocked the first ever instance of revenues of over ₹2 lakh crore, with gross and net receipts rising 12.4% and 15.5%, respectively, bolstered by year-end filings, July’s gross receipts were the third highest (at the time) at over ₹1.82 lakh crore, up 10.3%. October’s GST receipts prior to refunds, released on Friday, were the second highest in the seven-odd years of the tax. But these spikes have been punctuated by underwhelming numbers. Growth in gross revenues had hit a three-year low of 7.3% in June, and worsened to a 40-month low of 6.5% in September. October’s revenues before adjusting refunds to taxpayers, break a two-month streak of sequential dips, with year-on-year growth recovering to 8.9%. Net revenues grew at a slower 7.9%, but doubled from September’s 3.9% uptick. While this marks an improvement, the overall growth of net GST revenues this year has still declined to 9%, from about 10.2% as of August.
From the fiscal perspective, indirect taxes will have to grow faster in the months ahead to meet the Budget target, but that may not be a significant risk to the deficit yet, as direct taxes and non-tax revenues have been doing well. Revenue and capital spending have been on a tight leash too. Of course, a month’s GST revenues are linked to transactions that take place in the preceding month, and GST is a tax on consumption. So, last month’s revenues are the first signal of private consumption trends this festive season, although significant purchases may have slowed in the latter half of September amid the 16-day Pitru Paksha. The RBI, in its October bulletin, had termed recent months’ GST trends to be a sign of slackening momentum in the economy, but pinned its hopes on improved festive demand and consumer sentiment. In that context, the latest GST receipts are a good omen but November’s receipts for last month’s activity will lend greater clarity on whether those hopes are well placed, with Dussehra and Deepavali falling in October unlike last year. Initial car sales data suggest a K-shaped situation with pricier SUVs growing fast while overall sales straddled the middle lane. However this plays out, the GST Council, that meets soon, must not be deterred from expediting the rate rationalisation exercise, including the lowering of taxes on items such as cement and insurance, which could spur higher sales volumes and compensate for any revenue losses.