IGI Logo

GST collections in Aug’21 continue to exhibit resilience

Notwithstanding the 4% MoM seasonal decline, GST collections in Aug’21 stood at INR 1,120bn, above the INR 1trn mark for the second consecutive month following the dip in Jun’21 amid the second COVID-19 wave. On a YoY basis, this translates into a growth of 30%, with domestic GST (sales of Jul’21) growing 27%YoY. On a 2-years basis too, Aug’21 collections expanded 7%, exhibiting resilience due to – i) improved compliance (GST tax base at 12.8mn as per FM’s recent statement vs. 9mn in Jan’21), and ii) pick-up in economic activity. From a fiscal perspective, we estimate that so far, i.e. FYTD22 net monthly GST run-rate (net of refunds) remains in line with the budgeted requirement of INR 1.0-1.1trn.

For this to continue, in the coming months gross GST collections should range between INR 1.2trn-1.3trn. While a possible third wave could threaten this, additional market borrowings for GST-related shortfall for now remains lower-than earlier anticipated (at INR 830bn) since the Centre has already accommodated c.47% of the estimated INR 1.58trn shortfall in its Apr-Jul’21 borrowings. Yet, akin to the last fiscal, the elevated supply of govt. securities could drive the 10-year Gsec rate to 6.5% from the current 6.2% if the RBI begins monetary policy normalisation through lower Gsec purchases under G-SAP (and OMOs). So far INR 2.37trn of OMOs +GSAP have been conducted vs. INR 3.1trn of OMOs in FY21.

* GST collections in Aug’21 fall MoM due to seasonality, but exhibit resilience on a 2-year basis: GST collections in Aug’21 stood at INR 1,120bn. This is lower MoM given collections in Jul’21 stood at INR 1,164bn, but higher YoY (INR 864bn in Aug’20), details in exhibit A. The 30% YoY growth was driven by the – i) 27% expansion in domestic GST (sales for Jul’21), and ii) 39% YoY growth in import GST (for the month of Aug’21). On a 2-year basis too, GST rose by 6.8% (exhibit B). The govt. has stopped disclosing compliance since Jan’21, but the FM’s recent statement talks about a 40%+ increase in the GST tax base to 12.8mn since Jan’21. Going forward too, GST collections are expected to continue to remain above the INR 1trn mark, unless a possible third wave results in sporadic lockdowns.

* Average run-rate for gross GST collections for the months to come stands at INR 1.2- 1.3trn: Centre’s GST collection for FY21 stood higher by c.360bn at INR 5.5trn vs. RE target of INR 5.2trn. As a result, growth target for FY22 has come down to 14.3%YoY from the budgeted 22.3%YoY. For FY22, our analysis of states budget (15 states) suggests that budgeted SGST for all states/UTs could be at INR 6.2-6.5trn. When combined with the Centre’s budgeted GST numbers, the overall net GST target for FY22 is estimated at INR 12-5-12.8trn, requiring a net monthly run-rate of INR 1.0-1.1trn vs. FY21 monthly run rate of INR 830bn. According to our calculations, this run-rate has been met so far, and for the months to come, the gross GST collections every month should clock between 1.2trn-1.3trn.

* GST-related market borrowings lowered due to Centre’s comfort on receipts side: The 43rd meeting of the GST council on 28May’21 has estimated borrowings amounting to INR 1.58trn to compensate states for GST losses in FY22 uncovered by cess collections. This is supposed to be borrowed by the Centre and transferred to states via back-to-back loans. However, the Centre has already accommodated INR 750bn of this with its existing borrowings in 1H. Therefore, reducing the need to raise the supply of market borrowings.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

CIN Number : L67120MH1986PLC038784

Above views are of the author and not of the website kindly read disclaimer