GST collections to drop 20% in May due to state lockdown-like curfews, say experts

Goods and service tax (GST) collections could see a dip of 10-20% in May as Maharashtra – the largest state contributor to GST – and Madhya Pradesh enforce lockdown-like curfew rules even as other states have imposed night curfews to control the rising number of Covid cases.

“With closed shops, businesses, supply-chain bottlenecks, restricted movements etc, tax collections are set to fall nationally by 10-20% in May, and for states like Maharashtra which is the highest contributor, the collections are likely to reduce by half,” said Harpreet Singh, indirect tax partner at KPMG India.

Maharashtra clocked Rs 17,038 crore in GST collections in March, which is 18.5% of state GST of Rs 91,869 crore, as per data released earlier this month.

“The immediate impact will be felt by auto, cement and other manufacturing led sectors that have sent inventory to dealers who will now be stuck with no secondary sales. This will put further pressure on working capital,” said MS Mani, partner at Deloitte India.

The collections in May, from transactions done in April, may not be as muted as May 2020 when the revenue was washed out owing to the lockdown in April 2020, but the impact could be more severe – from both supply side as well as demand side – if more states impose full day curfews, experts said.

“It’s really a tough call for the government, as the current Covid spike may warrant further lockdowns. We may well see a W shape tax collection pattern instead of V shape pattern,” Singh added.

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While Maharashtra and Madhya Pradesh have imposed tough restrictions to curb escalating number of Covid cases, others like Delhi, Haryana, Rajasthan, Chandigarh, Odisha and Gujarat have imposed night curfews in some districts or all across the state or union territory.

Pratik Jain, partner at Price Waterhouse & Co, LLP said that the lockdown last year had a significant impact on consumption and consumer sentiments, but since the curfews being imposed are state specific and not national, the effects may not be deep.

“With prior experience supply chain bottlenecks are expected to reduce, the impact may not be that severe. Similarly, on the compliance front, one should expect a lesser impact than last year,” he said.

Experts noted that the curbs will certainly disrupt business and economic activity in the states and have a trickle-down effect on GST, customs collections, or even GST related compliances which need physical attendance of stakeholders.

“The physical interactions being required by various revenue departments need to be curtailed in the Covid times as this is fuelling further spread of the virus and also leading to undue stress on the taxpayers,” said Bipin Sapra, tax partner at EY.



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