Higher compliance, pent-up demand pushed GST mop-up to new high, shows data

Collection hit a record in December 2020, crossing Rs 1.15 trillion, in a sign that faster recovery could really be on its way

Goods and Services Tax collection hit a record in December 2020, crossing Rs 1.15 trillion, in a sign that faster recovery, visible from upward revisions in India’s economic growth estimates, could well be on its way. 

But apart from this number, GST collections for the lockdown and post-lockdown months of 2020-21 shed light on the reasons why the revenues under the tax are recovering. 

Before we go into the analysis, it is important to note that this new data represents GST revenue “for” economic activity in a particular month, and returns filed for that month till the end of 2020. Let us call this GSTN data. 

This is different from the Rs 1.15 trillion, which represents GST revenue clocked “in” a particular month (December 2020). This cash flow data from Department of Revenue (DoR) largely pertains to the economic activity in the previous month, but can pertain to any month before December 2020, which got cash-accounted for in December 2020. Let us call this DoR data. 

The analysis of GSTN data gives us a chance to correlate GST numbers for a month to economic activity in that month, rather than mere cash accrual of GST in a particular month, as DoR data shows. 

Firstly, the GSTN data shows that revenue for October 2020 (the latest available) was close to Rs 81,000 crore, compared to the Rs 1.05 trillion collected in November, according to DoR data. Though this may seem lower than cash collection, it was 11 per cent higher than the October 2019 revenue. 

Since GST implementation, the seasonal peak in GST revenue, as with the economic activity, has usually surfaced in the festive months from October to December. It is when the spending power of the public is maximum as they have disposable income, and that matches with an increased supply of goods and services. 

The GSTN data shows a GST revenue peak April, visible in 2018 and 2019. Most of it has to do with the filing for financial year-end in March. April 2020 was when lockdown was at its peak, and GST revenue, the lowest since August 2017. But October 2020 showed a festive jump with a magnitude that was not visible in the Octobers of 2019 or 2018. 

This suggests that economic activity zoomed in October. It is possible that pent up demand coincided with festive demand in that month, but how much, is a tough question with no clear answer. 

“There is no data to quantify the impact of pent up demand. But there is a lot of demand, and it is being fulfilled without supply disruptions,” said M S Mani, partner at Deloitte. 

While this recovery was on, many services such as aviation, hospitality, travel and tourism, and entertainment, were either shut down or far from recovery. 

“The collections are good without these services fully active. Once these services come back to normal, revenues will inch up fast,” said Mani.

Secondly, monthly data on summary input-output returns (GSTR-3B) filed shows that compliance may be on the rise in 2020, despite delayed return filing due to lockdown. 

More than 9 million GSTR-3B returns have been filed for all months since May 2019 to September 2020, till a benchmark date of November 30, 2020. 

This rising trend in number of 3Bs filed suggests that compliance and tax payment within the due date may have been happening more often in the recent months of recovery. There could be an angle of high penalty for late filing, or and losing access to GSTN portal to this, but it is likely that more firms now file taxes on or before the due date. 

Finally, we look at GST revenue paid per return (GSTR-3B). 

In the initial months of 2020-21, lockdown had an impact on incomes of firms, and that resulted in a lower revenue per taxpayer, or per return filed, said Sacchidananda Mukherjee, an economist with the National Institute of Public Finance and Policy. 

But in October 2020, GST revenue per taxpayer shot up close to the Rs one lakh mark, at Rs 98,732 per tax payer. Only thrice has this figure gone above that mark, in August 2017, April 2018 and April 2019.