InvestorQ : How do you see the impact of COVID-19 on the indirect tax collections in India, especially the GST where most of the indirect taxes have been subsumed?
Sam Eswaran made post

How do you see the impact of COVID-19 on the indirect tax collections in India, especially the GST where most of the indirect taxes have been subsumed?

swati Bakhda answered.
1 year ago

Virtual lockdown and closure of offices across states will have impact on GST collections in March and April even as taxpayers demand extension of date of filing of returns from March 20 to some other date. But the real issue is that the growth momentum could be lost and that could have a deep imprint in the coming months and the coming quarters of tax collections. GST could be a major casualty.

· Businesses across the board would operate at minimal level. Primarily, sectors such as travel, hotel and food will see a sharp fall in the business. GST collections from these sectors could be severely impacted.

· The inoperability analysis for three sectors namely Transport, Tourism and Hotels shows significant impact on demand and hence output. The impact of a 5% inoperability shock could be 90 basis point on GDP from Trade, Hotel and Transport to Storage and Communication segment and is likely to be spread over 2019-20 and 2020-21. The bigger impact will be on FY21.

· An average of 2.5 crore to 3 crore people use airplanes and trains each month. Even a 10% reduction will lead to loss of revenue of Rs.3,500 crore on a monthly basis. Trade, hotels, transport, communication and broadcasting generated Rs.33 trillion worth of value of services in FY20. This number might be revised downward, impacting GST collections from this segment.

· GST is charged at 5 per cent on economy class airfare and 12 per cent on business class airfare, while GST on train fare is 5 per cent. The GST on hotel rooms with tariffs of up to Rs 7,500 per night is 12 per cent and the tax on room tariff of above Rs 7,500 is 18 per cent. Impact on transport, tourism and hotels would further impact sectors such as fuel minerals, electricity and water and rubber, plastic, coke and petroleum products.

· This will impact the GST collections and lead to further squeezing of the government's fiscal situation. The government had a GST collection target of Rs 1.25 lakh crore in March. That looks unlikely now. In February, the monthly GST collection was Rs 1.06 lakh crore against the revenue department's target of Rs 1.10 lakh crore. And all these are revised estimates and much lower than original. Central GST collections were nearly 20% short of target.

· Most offices have been forced to work on minimal staff and many have asked their employees to work from home. Taxpayers will be short of staff as most of them are unable to report to offices, an extension of due date of payment of GST and filing of return is eagerly being awaited and that is most likely to happen and will further hit collections on this front.

The real GST impact could only be seen in the coming year FY21 but the impact would be prolonged if the lag effect persists.