In India, Goods and Services Tax is one of the primary sources of revenue for every State as it shares nearly one-third of their taxable income. GST is a destination-based consumption tax and is a good representative of the performance of a state’s economy. Thus, the GST recovery also indicates the regaining of the State’s domestic product. The Covid-19 epidemic and in due course extended lockdown; States saw a high fall in the GST collection in the first quarter of 2020-21. Favorably, economic activity was in bloom in the first quarter of 2021-22. This write-up will discuss how GST revenue has made a brilliant recovery in Quarter 1 of 2021-22.
Recent trends in GST collection
In quarter 1 of the financial year 2021-22, States’ GST collection on average grew at 12.7 % compared to the corresponding period in the previous quarter 1 of the financial year 2020-21. However, as Covid- induced lockdowns bump into the State economies back, revenue from GST drops.
In Quarter 1 of Financial 2021-22, States like Gujarat, West Bengal, and Punjab have done amazingly well in GST growth, while Chhattisgarh, Karnataka, and Odisha have performed poorly. Also, States like Kerala, Uttar Pradesh, and Madhya Pradesh were severely hit in the GST collection.
The slow weakening of the unusual coronavirus expanded vaccines and opening up of the economy led to the restart of economic activity in full swing. The situation was much better in the first quarter of 2021-22, which was reflected in higher GST collection in quarter 1 of 2021. Additionally, States in ordinary grew tremendously by 98 % compared to the relevant previous period.
This high growth rate in the GST collection might give an apprehension that States have revived. However, this can be deceptive since the growth indicator fails to reflect the recovery nature precisely when the analog base is low, or the comparison period saw a hasty decline.
Anti-evasion moves that have contributed to higher GST revenue
Apart from the “base effect” and higher economic growth, actions like anti-evasion undertaking, including detecting the occurrence of fake input tax credit and action against deceitful billers, employment of data analytics evasion have contributed to higher collections.
Regardless of this extraordinary growth, the revenue collection of some States was still below the first quarter of Financial Year 20-21, which was more or less an average year. Many states have overshot the collection of Quarter 1 of Financial Year 20-21. Also, few states have lost growth in GST collection for one year. Among the speedsters, Kerala is the only major State with a massive revenue shortfall of ₹563 crores in Quarter 1 of Financial Year 21-22 compared to Quarter 1 of Financial Year 20-21.
Statistics of Past financial year related to GST revenue collection
States Gujarat, Haryana, Maharashtra, Odisha, Telangana, West Bengal, Karnataka, and Punjab have comfortably surpassed Quarter 1 of Financial Year 20-21 collection by a margin of ₹500 crores or more in Quarter 1 of Financial Year. Note that this astronomical figure of 98% state indicates a stronger recovery despite Covid-19 second wave, which was much more severe in India.
This didn’t exactly strike the economy back, but it slowed it down. At the same time, the GST collection covered around 50 % in May 2021 as compared to April 2021. Further, growth in June 2021 boomed back for most of the States. Hence, the first-quarter growth is by no means a less remarkable feat.
Although growth in GST Revenue collection has revived for most States, one year of negative growth in the GST collection has had a severe consequence on GST compensation.
Compensation provided to the states having GST revenue shortfall
As per the Goods and Services (Compensation to States) Act, 2017, States at a loss are Constitutionally guaranteed to get compensation on account of the introduction of the GST for five years from the date of implementation, i.e., July 2017 to July 2022.
Before the Covid-19 pandemic, States had revenue shortages, and this aggravated after the pandemic. Conclusively, the compensation conditions increased sharply due to the lower collection of GST and the Compensation Cess.
On the contrary, The Union government has also been falling short of collection, and even more, the collection of revenue from the GST compensation Cess were falling considerably short of demand for the compensation amount.
While the increased number look strong, especially in the first quarter of financial year 2021-22, Latest data on GST collection indicates improvement in the economic activity. The Indian economy also recovered at a fast pace 21 % growth in the first quarter of 2021-22. The extensive GDP growth accompanied with anti-evasion measures to block GST leakages continued unsecured in various parts of the country and various profitable reforms announced by the government are expected to encourage this positive trend in GST revenue collection in the second half of the year.
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