Why GST revenues continue to rise

Milestones and records are normally tracked in sports. In India, monthly GST collections have almost become a barometer of the performance of the economy. On the first day of every month, the Ministry of Finance releases data on GST collections of the previous month.

The GST revenues of October 2022 were Rs 1,51,718 crore — the second-highest collection ever since the Goods and Services Tax was introduced. It was next only to the collection in April 2022. October also saw the second-highest collection from domestic transactions. This is the ninth month and for eight months in a row the monthly GST revenues have been more than the Rs 1.4 lakh-crore mark. During September, 8.3 crore e-way bills were generated, which was significantly higher than the 7.7 crore bills in August.

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One of the reasons for the record GST revenues is that consumption increased during the festival season that just concluded. Consumer spending was muted over the last two years due to the Covid-19 pandemic, resulting in consumers resorting to “revenge consumption” this year. An analysis of the top five states that contribute to GST revenues presents no surprises. Between themselves, Maharashtra, Karnataka, Tamil Nadu, Gujarat and Uttar Pradesh have kept the top five slots. These states are either manufacturing or service-driven.

An analysis of the percentage increase in GST revenues in October 2022 as compared to October 2021 presents an interesting insight. Ladakh (74%) topped the list while Goa, Puducherry and Goa showed percentage increases of more than 30%. “Revenge tourism” is clearly a factor that has contributed to these increases in GST revenues. However, the rise cannot be attributed purely to revenge tourism and consumption. Other factors, too, have contributed their bit to the uptick in GST revenues.

Nine months ago, Section 16(2)(aa) was introduced in the CGST Act. The GST revenues have crossed Rs 1.4 lakh crore for eight months in a row. This may not necessarily be a coincidence. Section 16(2)(aa) added a condition for the taxpayer to be eligible to claim input tax credit, the details of the invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under Section 37. In other words, input tax credit could be claimed only if the counterparty has reflected it in their return and the details appear in GSTR 2B. This restriction on availing input tax credit has also contributed to taxpayers having to shell out more while discharging their GST liabilities.

Extending the gamut of e-invoicing to taxpayers with a turnover greater than Rs 10 crore is yet another contributor to increased GST revenues. The menace of fake invoices, which was rampant in the early days of the GST regime, has reduced due to e-invoicing. Aggressive assessment by tax officers completes the list of contributory factors.

There are possibilities for GST revenues to increase even further. The Central Board of Indirect Taxes and Customs (CBIC) is contemplating seeking the blessings of the GST Council to decriminalise certain offences under GST laws. The idea behind this proposal appears to be to differentiate between minor offences and offences that are made with a clear intent to evade tax. The proposal appears to be to increase the threshold limit for the launch of criminal proceedings from Rs 5 crore to Rs 20 crore. It has been suggested that prosecution will only be initiated in extreme cases where wilful evasion of GST and misuse of input tax credit can be established. If this provision is introduced, it will bring GST laws on par with the provisions of the Income Tax Act where monetary penalties and the power to imprison taxpayers are enunciated in different clauses. At present, the 12 offences listed out in Section 132 of the CGST Act are very general and can be interpreted in any manner.

Any relaxation provided under the GST laws is always to be welcomed. However, decriminalisation provisions would work well only if the other provisions of the laws are clear and unambiguous. GST notices and assessments continue to be a source of great concern to taxpayers — in some cases, notices are being issued even for trivial reasons and assessments are more revenue-generation exercises than an interpretation of the law. Of particular concern is the fact that some assessing officers are attaching bank accounts of taxpayers as a means to ensure that the department gets its pound of flesh.

The CBIC should lay down some guidelines for assessment which can then be done by the state governments. The GST Council is expected to bless the decriminalisation provisions in its next meeting scheduled in November. They should wait for the tribunals to be set up so that taxpayers have a window to appeal at the appropriate forum against unjustified criminalisation orders.

(The writer is a tax expert based in Bengaluru)