Why GST revenues are booming

The GST revenue numbers that are released on the first day of every month have become barometers to assess the state of the Indian economy. The numbers for February 2024 are filled with positivity. The gross Goods and Services Tax (GST) revenue collected is Rs 1,68,337 crore, marking a robust 12.5% increase compared to that in the same month in 2023. This growth was driven by a 13.9% rise in GST from domestic transactions and an 8.5% increase in GST from import of goods. GST revenue net of refunds for February is Rs 1.51 lakh crore which is a growth of 13.6% over that for the same period last year. 

As of February 2024, the total gross GST collection for the current fiscal year stands at Rs 18.40 lakh crore, which is 11.7 per cent higher than the collection for the same period in FY 2022-23. The average monthly gross collection for FY 2023-24 is Rs 1.67 lakh crore, exceeding the Rs 1.5 lakh crore collected in the previous year’s corresponding period. GST revenue net of refunds as of February 2024 for the current fiscal year is Rs 16.36 lakh crore which is a growth of 13 per cent over that for the same period last year.

Maharashtra, Karnataka, Gujarat, Tamil Nadu and Haryana are the toppers in terms of contribution to GST revenues — together they give about 46% of GST revenues. While the growth in GST revenues is to be welcomed, studies have shown that when mapped with GDP growth and adjusted for inflation, GST revenues could be lagging. The Karnataka government recently protested that they have been deprived of Rs 59,274 crore of GST revenues — as against a shortfall of Rs 1,65,532 crore, they were compensated only Rs 1,06,258 crore. Since the GST revenue data given every month follows a template, we will have to analyse only data that is published due to which an exact indicator of the performance of GST vis-à-vis the erstwhile regime and adjusted for economic factors such as growth in GDP and inflation cannot be done. 

One of the contributing factors to the uptick in GST revenues could also be the aggressive assessments being made by assessing officers. “Some revenue at any cost” seems to be the guiding mantra for completing assessments. The law on some areas such as availing input tax credits on the concept of matching invoices (3B vs 2B) has been interpreted differently by different appellate authorities. GST appellate tribunals are expected to start functioning only by the latter half of this year. The tribunals are going to be burdened with a huge opening balance of cases which could delay new appeals that would be filed once the tribunals are up and running. This could be a good time for the Central Board of Indirect Taxes and Customs (CBIC) to introduce a ‘GST settlement scheme’ across the board for all GST taxpayers. Any such scheme should be attractive enough for taxpayers to opt for it instead of going in for litigation.

GST on guarantees

With elections to be held soon, the focus of the government may not be on GST. Even if the GST Council does meet before the elections, it would be to ratify some inconsequential decisions. Decisions on big-ticket items such as the levy of GST on corporate guarantees would have to wait till the elections are over. Many companies operating in the infrastructure sector have filed writ petitions seeking a review of the levy of GST on corporate guarantees. The structure of the sector is for holding companies to give guarantees to subsidiaries that are set up for each project as per the diktat of regulators such as the National Highway Authority of India. The GST department does not appear to have understood the intricacies of this sector and is demanding GST on the entire annuity receivable though it is spread over a period of time. The amount on which GST is chargeable in the case of a corporate guarantee — 1% of the value of the guarantee or the actual consideration charged whichever is higher — is also considered to be too high considering the fact that in the infrastructure sector, guarantees are given as a matter of comfort for banks and no actual service is being performed. 

GST laws have been a roller-coaster ride since July 2017. There has not been any area of the law that has been amended multiple times over the past six years. In addition to introducing a settlement scheme, the government should also form a task force that could take an independent relook at some areas of the law that are turning out to be pain points for the taxpayers. GST is here to stay and may not be a good and simple tax any longer. The least that taxpayers are seeking is for the tax to be logical.

(The writer is a Bengaluru- based tax expert)