Decline in tax revenue collection narrows to 37% in May as economy picks up

The decline in tax revenue, before devolution to states, narrowed to 37 per cent in May, from 44 per cent in April. This was on the back of improved indirect tax collections due to signs of economic activity picking up as lockdown restrictions eased.

Gross tax revenue in May stood at Rs 58,533 crore, against Rs 93,389 crore in the same month last year, revealed the data by the Controller General of Accounts on Tuesday.

The Centre’s tax revenue at Rs 33,850 crore till May was just 2.1 per cent of the Budget target, against 7 per cent achieved last year during the same period.

The central goods and services tax (CGST) collection recovered sharply to Rs 18,961 crore in May, against Rs 5,942 crore in April. The severity of contraction was down to 45 per cent, against 87 per cent decline seen in the previous month. The CGST collection till May at Rs 24,895 crore was just 4.3 per cent of the Budget target.

The GST comprises CGST, state GST, Union Territory GST, Integrated GST, and compensation cess. Although the government has not officially released the GST collection figures for April and May, the collections stand at around Rs 95,000 crore for the two months combined, against Rs 2.13 trillion in the same period last year.

The generation of GST e-way bills had trebled in May, compared to the previous month, but was half the levels seen before March. About 25.4 million e-way bills were generated on the GST Network portal in May, compared to 8.6 million in April. Under the GST regime, an e-way bill has to be generated if goods worth over Rs 50,000 are transported.

The compensation cess collection improved significantly to Rs 6,020 crore in May, from Rs 990 crore in April. The May cess collection was about 22 per cent lower than the same month last year, against an 88 per cent decline seen last month.

States have been in a precarious position, with compensation cess collection drying up and revenue shortfall increasing. The Centre has laid it out that states will only be compensated from the compensation cess fund. The GST Council is expected to meet in a fortnight to discuss an alternative mechanism of compensation to states for the GST shortfall, including market borrowing.

Excise collection improved significantly to Rs 10,876 crore in May, up from Rs 80 crore in April. Overall excise collections were down 36 per cent till May.

Customs revenue shrunk 62.7 per cent in May, from 70 per cent decline seen in April. Customs collection improved marginally to Rs 5,633 crore in May, from Rs 3,934 crore in April.

“As we move towards Unlock 2.0, once the production and manufacturing sector raises its capacity, we will see positive signs. The decline at this time is worrying, but not something which cannot be taken care of,” said Sumit Batra, partner, India Law Alliance.