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GST kitty at 19-month low as economy slows

October 02, 2019 05:05 AM

courtesy  HT OCT 2

GST kitty at 19-month low as economy slows
Rajeev Jayaswal and Roshan Kishore

New Delhi : Goods and Services Tax (GST) collection in September fell 2.67% to ₹91,916 crore compared to the same month last year, driven by the ongoing consumption slowdown. September’s GST collections were the lowest since February 2018. The tax collection in August 2019 was ₹98,202 crore.

Experts cited the economic slowdown as the reason for falling GST collections. Deloitte India partner MS Mani said: “The lower collections seem to be on account of the lower GDP [gross domestic product] growth numbers that we have seen as GST is a transaction tax that is immediately impacted by any decline in economic activity.”

India’s annual GDP growth in the quarter ending June 2019 was 5%, the lowest in 25 quarters. It also marked the fifth consecutive quarter of slowing growth in the Indian economy.

The fall in GST collections in September has been accompanied by a decline in various high-frequency economic indicators. The Nikkei India Purchasing Managers’ Index for manufacturing in the month of September was 51.4. Although it is above 50, which separates growth from contraction, the annual difference in this indicator was -1.5%.

India’s largest carmaker Maruti Suzuki reported a 27% annual decline in domestic car sales in September. Domestic car sales have been declining for 14 consecutive months according to data compiled by the Centre for Monitoring Indian Economy (CMIE) until August 2019.

According to data released on Monday, India’s index of eight core sector industries (coal, crude oil, natural gas, refinery, fertilizer, steel, cement and electricity) contracted by 0.5% in August 2019, the lowest since August 2015.

And nearly 45% of the economists who participated in a Reuters poll believe that cumulative rate-cuts up to 50 basis points are needed to boost growth significantly. One basis point is one hundredth of a percentage point. An HT column on September 15 had asked for a 100 basis point cut in interest rates to boost growth.

The data provide the context to the Reserve Bank of India’s bimonthly monetary policy committee (MPC) meeting which began in Mumbai on Tuesday. Even though the government has announced a slew of measures to support economic activity, including a big cut in corporate tax rates, 60% of around 50 economists who answered an additional question in the Reuters poll found it unlikely that they would have a “notable impact on the economy”.

“The lower collections perhaps do reflect the economic reality on the ground and the government will need to find ways to spur the demand,” Pratik Jain, national leader, indirect tax, PwC India said.

Experts hope that tax collections will improve in the festival season. EY India tax partner Abhishek Jain said, “With the recently announced fiscal and economic measures coupled with the upcoming festive season, the demand and related GST collections may witness an increase in the coming months. Stricter controls on tax evasion and audits by the revenue authorities may also help in improving the collections.”

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