Goods and Services Tax (GST) collections in the month of April 2022 reached an all-time high of ₹1.68 lakh crore. This is the first instance of monthly GST collections crossing ₹1.5 lakh crore. What is the larger macroeconomic significance of this number? The latest GST collections capture economic activity in the month of March, the last month of the fiscal year. So, it is likely that compliance concerns have given a boost to the monthly GST number. This suggests that subsequent monthly collections might not be as high. To be sure, the April 2022 GST collection shows a 20% year on year growth over the April 2021 number. So, seasonality cannot be the sole factor behind this increase. Another factor which might have given a boost to the GST numbers is the spike in inflation and a lot of producers deciding to pass on these price hikes to consumers. Taxes, after all, are a fraction of nominal prices.
Does the role of seasonality and inflation mean that the latest GST number does not hold any message of the state of the macroeconomy at large? This is a more difficult question to answer at the moment. While there is no doubt that the Indian economy, especially its service sector has recovered sharply from the pandemic, it is also true that most institutional forecasts — one by the Monetary Policy Committee of RBI included — have made downward revisions to their growth projections for the Indian economy. Increased uncertainty around geopolitical stability, spectre of the inflationary situation becoming even worse and inflation putting a squeeze on consumer demand in the domestic economy are some of the downside risks to the economy. The short point is the economic situation calls for continued vigilance.
The statement issued by the ministry of finance about April 2022 GST collections acknowledges these concerns — indirectly. Even though GST collections were at an all-time high, the statement has steered clear of making any claims about the state of the economy. What it does emphasise is the role of increased compliance and reduction in tax evasion in boosting GST collections. If this is indeed true, it is good news on the fiscal front.
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