GST compensation cess mop-up rises for first time in five months

A large portion of the fall could be attributed to imports, which were down 23 per cent YoY, while domestic transactions were down just 8 per cent YoY
Goods and services tax (GST) collections slumped to a three-month low in August, and came in 12 per cent lower year-on-year (YoY), indicating slower recovery in economic activity.  However, compensation cess collections rose for the first time in five months, and 6 per cent YoY, amid the tussle between the Centre and states.

The overall mop-up remained well below the Rs 1-trillion mark for the sixth straight month owing to the pandemic, even as unlocking began in June. GST collections stood at Rs 86,449 crore in August, compared to Rs 87,422 crore in July, according to finance ministry data. It was at 88 per cent of August 2019 collections. 

A large portion of the fall could be attributed to imports, which were down 23 per cent YoY, while domestic transactions were down just 8 per cent YoY.  “During the month, revenues from imports were at 77 per cent and revenues from domestic transactions (including import of services) at 92 per cent of revenues from these sources during the same month last year,” the ministry of finance said in an official release. 

However, in July, revenues from domestic transactions had touched 96 per cent of last year’s levels, with imports at 84 per cent of the same. 

“It may be noted that taxpayers with turnover below Rs 5 crore continue to enjoy relaxation in filing of returns till September,” the ministry explained in the release. 

In order to improve collections, the government is planning more anti-evasion measures, including e-invoicing for large firms with turnover of Rs 500 crore, from October 1.  Compensation cess came in at Rs 7,215 crore in August — 5.7 per cent higher than the Rs 6,822 crore in August 2019.  The GST Council is expected to meet in a week to discuss the two options on an alternative compensation mechanism proposed by the Centre. 

Central GST collections fell to Rs 34,122 crore in August, against Rs 39,467 crore in July. State GST collections stood at Rs 35,714 crore, lower than Rs 40,,256 crore during the previous month. Integrated GST mop-up was also lower at Rs 42,264 crore, compared to Rs 42,592 crore in the previous month. 

Among large states, a sharp decline in collections was seen in Maharashtra, Karnataka, and Tamil Nadu at 13 per cent, 11 per cent, and 12 per cent, respectively. Delhi saw an 18 per cent fall.  However, a marginal rise was recorded in Rajasthan and UP, whereas a slight drop was reported by Haryana and Gujarat. 

Pratik Jain, partner and leader (indirect tax), PwC India, said it was relevant to note that the percentage drop was higher for smaller states. As things open up gradually, collections are likely to be rise progressively. 

Abhishek Jain, tax partner at EY, said a significant part of the dip was attributable to imports, which have declined owing to the impact of coronavirus on global trade. 

M S Mani, partner at Deloitte India, said that in the backdrop of disappointing GDP data for Q1, the GST figures indicate that collections are in recovery mode. 

“The fact that GST collections on domestic transactions were just 8 per cent lower YoY indicates a revival. The sharp drop of 23 per cent in import GST could be on account of various import-substitution measures. It is expected that collections in the coming months will enable it to reach last year’s levels in a month or two,” he added.

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