Compliance-led gains in GST collection at 40bps of GDP since 4QFY21: Ind Ra

Only four states reported a growth of more than 14 per cent in GST collections between FY2019-20 (FY20) and FY2022-23 (FY23), India Ratings & Research (Ind-Ra) said in a research report.

The report estimated compliance-led gains in GST collections at 40 bps (100 basis points equals 1 percentage point) of GDP during the January-March quarter of FY 2020/21 - January-March quarter of FY 2022-23 (4QFY21-4QFY23) over the October-December quarter of FY 2017-18-January-March quarter of FY 2019-20 (3QFY18-4QFY20). The report has been released at a time when the Finance Ministry has reported an all-time high GST collection of Rs 1.87 lakh crore in April.

The 14 per cent threshold is important as States with a growth rate of below 14 per cent were getting compensation till June 2022. The Ind-Ra study revealed that of the 30 states/ union territories, only four, namely, Andhra Pradesh, Arunachal Pradesh, Nagaland and Odisha, recorded a CAGR (Compounded Annual Growth Rate) growth rate in GST in excess of 14 per cent during FY20-FY23.

“While the growth in tax collection for Andhra Pradesh was a tad above 14 per cent, the rest witnessed a growth rate of higher than 18 per cent,” the report prepared by Principal Economist, Sunil Kumar Sinha, and Senior Analyst, Paras Jasrai, said.

As a destination-based tax, GST was expected to benefit consuming states. On the contrary, “some of the states whose GST collection growth was more than the national average of 11.9 per cent, such as Andhra Pradesh, Gujarat, Haryana, Karnataka and Tamil Nadu, were producing states, and had higher per capita income,” the report said.

It noted that since November 2020, the government has clamped down on tax evasion and introduced a variety of compliance measures to augment GST collections. These include blockage of e-way bills on non-filing of returns, deployment of data analytics and other technology for curbing tax evasion, and reduction of the annual turnover limit to Rs 10 crore for issuance of e-invoicing and rationalisation of tax rates, to name a few.

The GST/ GDP ratio, which nets out the impact of inflation/ nominal GDP, is a good gauge for assessing the gains from compliance, Ind-Ra said . The ratio, which has averaged 6.1 per cent during 3QFY18-4FY20, improved to 6.5 per cent during 4QFY21-4QFY23. “Factoring in the impact of higher imports, the efficiency gains of GST collected from domestic activity stood at 18bps of GDP during 4QFY21-4QFY23 over 3QFY18-4FY20. On the whole, the agency estimates gains from compliance-led measures initiated by the government to be 40bps of GDP during 4QFY21-4QFY23 over 3QFY18- 4FY20,” Jasrai said.

The industrial sector has seen a meaningful pick-up, but is still some distance away. As growth in core sector output dropped to a five-month low of 3.6 per cent in March 2023, the agency expects industrial output to have recorded a muted growth rate of around 4 per cent in the same period. The report also noted that the recovery in the services sector remains lopsided.