Inflation, imports main reasons for record GST collections, says report

The record goods and service tax (GST) collections in April were less due to increased consumption and more due to inflation and rising imports, said a report by Ambit Capital on Monday.

“The jump in GST collections should not be confused with commensurate rise in consumption as consumption in real terms is just 2 percent above pre-pandemic levels,” said the report, authored by Ambit’s research analysts Sumit Shekhar and Eashaan Nair. “Our analysis shows that the higher GST collections have been driven by high inflation which has pushed nominal GDP growth to an 11-year high, tightening of compliance by government which has led to lower tax evasion, surge in imports, and uptick in high-ticket consumption post pandemic, even as mass consumption has suffered,” the report stated.

On Sunday, the Finance Ministry said that GST collection touched a record high of Rs 1.68 trillion in April, surpassing the Rs 1.5-trillion mark for the first time since the introduction of the tax regime in 2017. The mop-up was Rs 26,000 crore higher than the previous record of Rs 1.42 trillion in March, which indicated an improved economic activity.

The ministry attributed the robust mop-up to its tightened compliance measures and a crackdown on GST evaders and fake bills.

In its report, Ambit said that one of the key reason for record collections was the surge in imports, which rose 54 percent year-on-year in FY22 driven by higher commodity prices, and which made integrated GST on imports the largest contributor of GST growth last year.

On domestic inflation, the report said that high retail and wholesale prices also pushed GST collections up. “Data suggests that nominal GDP growth and indirect tax collection have a very strong correlation. Therefore, surge in prices has been the single most important factor for higher GST collections,” it said.