Robust GST collections likely in November, uncertainty about December

There is good news for the goods and services tax (GST) collections in November, but equally bad for those in December. The GST collections rose to the second highest Rs 1.3 trillion in October. The government expects this record to be broken soon. In fact, eway bills in October give a rough idea that GST collections may be higher in November than the October level, even if they miss the record level. However, the generation in the first two weeks of November does not augur well for December collections.

At the outset, it should be noted that October GST collections are basically for the transactions done in September. And those done in the festive month of October would translate into GST collections during November.

E-way bill generation at 73.5 million in October was the highest ever. This gives advance information that GST collections in November could be higher than even those of October. The second highest e-way bill generation was at 71.2 million in March,2021. The March transactions had yielded Rs 1.40 trillion in April--a record so far. It is yet to be seen if that record would also be surpassed. As many as 67.9 million eway bills were generated in September.

However, only 24.1 million GST bills could be generated in the first two weeks of November.

Every registered person has to generate an electronic bill, called eway bill, if he gets goods worth over Rs 50,000 transported from one place to another. This has to be done regardless of whether goods are transported intrastate or interstate. When an eway bill is generated, a unique Eway bill number (EBN) is allocated and is available to the supplier, recipient, and transporter. Eway bill has to be generated even for branch transfer of goods by a company.  

Rajat Mohan, senior partner at AMRG & Associates, said GST collections for November could break all barriers and can contribute to the highest tax collections to the exchequer since the implementation of GST.

This record-breaking tax collection would be accredited to multiple factors like blooming post-lockdown festive season, ease in Covid-19 restrictions, lifting the international travel restrictions, spurt in infrastructure investment by the government and inflow of retail investment in stock markets is mobilizing savings into investments.

"V-shaped recovery of E-way bill generation in the last six months has made it apparent that increased supply of commodities would again break the record, leading to the highest tax collection in November," he said.

Harpreet Singh, partner, indirect taxes at KPMG in India, said there is definitely a positive correlation between e-way bill generation and GST collections.

"Thus, it would not be an overstatement to say that November may see the highest GST collections, given that the previous month has recorded the highest number of e-way bill generation till date. Continuous buoyancy in GST collections is a good indicator of the economic recovery,” he said.

However, M S Mani, senior partner at Deloitte India, sounded a word of caution. He expected GST collections to be robust, but warned that it would be premature to say as of now that the receipts would be the highest ever.

"It could be a record. But it should  be noted that the eway bill represents only goods movement and does not reflect services," he said.

There is no official data of share of services and goods to the overall GST collections, he said.

"If we had that data, we could do some kind of calculations," he pointed out.

He said the eway bill does not only reflect on collections, it also reflects on easing of Covid-induced restrictions in the economy.

He said if the same goods are sold three times, then three eway bills will be generated. Citing an example, he said if a company is making television sets, the first bill will be generated when it sends these sets to its warehouse. The second eway bill will be generated when these sets are sold  to wholesalers. The third will be generated when the dealer sells it to retailers.

"The fact that more eway bills are being generated also reflects that the economy is getting back to normal and supply chains are coming back to normal. As a result, velocity of the movement of goods has also increased," Mani said.

If the company sells TV sets, in the above example, to its branch and those remain there because there is a local lockdown, then next eway bill won't get generated, he explained.

As such, high eway bill generation indicates that the economy is coming back to normal. It applies to all sectors, including FMCG and consumer durables, said the expert at Deloitte India.

"You can say GST collections will be robust in November. Beyond that you cannot predict. The record number of eway bill generation indicates more velocity of movement of goods which also means that more and more areas are opening up and more trading is happening. More trading also means more GST collections because when stock is being emptied, it would have to be replenished which means more buying and selling," Mani said.  

Saket Patawari, executive director–Indirect Tax, Nexdigm, said the industry is right in expecting good revenue collections in November.

"Increase in the e-way bills collection is mainly on account of Diwali, the discounts offered during the season and the economic recovery considering the opening of offices post Covid restrictions," he said.

It will be interesting to watch out if the November collection breaks the records of all the collections in line with the e-way bill, he said.

High GST collections are also the result of increasing administrative measures by the government. The government has debarred those who have not filed their returns to generate eway bills from the third month onwards. Besides, if they don't file their returns for six months, their registration would  be suspended automatically.

All this has led to more and more registered persons and entities filing returns. As many as 85 per cent of returns were filed in October which was the record in the current calendar year.

As far as the generation in the first two weeks of November is concerned, Yuvika Singhal, economist at QuantEco Research, said it is a bit too early to say that GST collections will dip in December. She said seasonality is at play that caused the dip.

"One has to see the eway bill generation in the second half of November. December collections may moderate compared to November but it would definitely not come down below Rs one trillion," she said.

Mani said the dip in eway bill generation in the first 14 days of November is understandable.

In October, movement of goods peaked like anything in anticipation of diwali, he said. However, most markets such as Bombay, Ahmedabad, Pune, Nasik were closed after diwali for five days in November.

He said this will not have any bearing on December collections as generation of eway bill will pick up after shops open. "Eway bill is not something which is linear," he emphasised.

Singh opined that this is not the right way of interpretation when one says that eway bills have come down in November. "The better way is to say that it has peaked in October. Looking at October, we can't say the same number of bills would be generated in November and December. October was an exception," he said.

Mohan said GST collections will be on an upward swing only.

Patawari said drop in e-way bill generation till November 14 is expected since the businesses are cold post diwali especially in North India wherein they enjoy 4-5 days of holiday. He also attributed this to the withdrawal of discounts by online businesses.

Another and better way to look at some indications of GST collections is e- invoicing since it reflects both goods and services. E-invoicing or electronic invoicing is a system in which business to business invoices are authenticated electronically by GSTN for further use on the common GST portal. E-invoicing involves the submission of an already generated standard invoice on the portal.

However, the latest data for this was not available. Also, experts cautioned that the number of e-invoicing don't reflect anything as a more important parameter of value of e-invoicing is not given.

Mani said while goods can be sold multiple times, services can't be done that way. "If infosys provides software to a company, that company can't buy the software and sell it to one  else. Trading in services is not possible, trading in goods is possible," he said.

As such, eway bill number is a good indication of the volume and the velocity of trading. In the case of services, it is the value of services which is an indicator of how well the services sector is doing, Mani said.