Why GST collection has surged, what the trend indicates

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Last Updated03/11/2021

Gross revenue collections of Goods and Services Tax (GST) in October (for sales in September) rose 23.7 per cent year-on-year to Rs 1,30,127 crore.
This is the second-highest revenue collection under GST ever since its rollout in July 2017, coming on the back of a pickup in economic activity and several compliance measures taken by tax authorities to curb evasion.

unified and all-India based indirect tax that was imposed in July 2017. It is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.
GST has removed the cascading effect. Tax is calculated only on the value-addition at each stage of the transfer of ownership.
Multistage means: An item goes through multiple change-of-hands along its supply chain: these stages include: Purchase of raw materials, Production or manufacture, Warehousing of finished goods, Selling to wholesalers, Sale of the product to the retailers, Selling to the end consumers. Current GST is levied on all these stages.
GST is levied on these value additions, i.e. the monetary value added at each stage to achieve the final sale to the end customer.
Destination-Based tax: Consider goods manufactured in Maharashtra and sold to the final consumer in Karnataka. Since the Goods and Service Tax is levied at the point of consumption, the entire tax revenue will go to Karnataka and not Maharashtra.

There are three taxes applicable under this system: CGST, SGST & IGST.
CGST: It is the tax collected by the Central Government on an intra-state sale (e.g., a transaction happening within Maharashtra)
SGST: It is the tax collected by the state government on an intra-state sale (e.g., a transaction happening within Maharashtra)
IGST: It is a tax collected by the Central Government for an inter-state sale (e.g., Maharashtra to Tamil Nadu)

Chart 1 shows the trends in GST collections during the current calendar year. GST revenues have picked pace, with a 24-per-cent year-on-year growth and a 36-per-cent growth over the pre-pandemic period of 2019-20. The Finance Ministry said this growth in collections is “very much in line with the trend in economic recovery”.
“The GST revenues for October have been the second-highest ever since the introduction of GST, second only to that in April 2021, which related to year-end revenues. This is very much in line with the trend in economic recovery. This is also evident from the trend in the e-way bills generated every month since the second wave. The revenues would have still been higher if the sales of cars and other products had not been affected on account of disruption in supply of semiconductors,” it said.
Data released by the Finance Ministry also showed that timely payment of taxes has been increasing compared with previous months (Chart 2).
Out of the total returns filed, the share of returns for the current period filed in every month has increased. In July, 1.5 crore returns were filed as taxpayers had filed returns of past months due to deadline extensions given due to Covid.

State and Central tax authorities have been taken measures to ease compliance, such as nil filing through SMS, enabling a Quarterly Return Monthly Payment (QRMP) system and auto-population of return, the Ministry said.
The tax authorities have also taken steps to block e-way bills for non-filing of returns, system-based suspension of registration of taxpayers who have failed to file six returns in a row and blocking of credit for return defaulters.
For GST revenues collected in the respective regions, Maharashtra posted a 23-per-cent growth in GST revenues in October, Tamil Nadu 11 percent, Gujarat 25 per cent, and Karnataka 18 per cent.

The robust GST collections are quite encouraging and a clear sign of economic recovery. With the ongoing festive season, we can expect similar or even higher GST collections in the coming months"".