Growth in Indirect Tax revenue during FY 2020-21 and reasoning!

According to the CAG Report for the year ended March, 2021, Report No. 5 of 2022, the indirect taxes collections increased by INR 1,20,555 crore (12.56 per cent) during FY21 over FY20.

The annual growth of Indirect Taxes (Y-o-Y), which constantly decreased from 21.33 percent in FY 17 to 1.76 per cent in FY20, saw an upward trend in FY 21.

The growth in indirect taxes was due to increase in the receipts from Central Excise Duty and Customs duty, which increased, respectively, by INR 1,50,215 crore and INR 25,467 crore over the previous year (FY20). It may be pertinent to mention that out of all the major components of the Indirect taxes, the Central Excise Duty, which, after implementation of GST, is leviable only on five petroleum products and tobacco products, increased significantly by INR 1,50,215 crore (62.73 per cent) during 2020-21 from INR 2,39,452 crore in FY 20 to INR 3,89,667 crore in FY 21. When pointed out by CAG in December 2021, the Ministry stated (February 2022) that higher growth in Indirect Taxes during 2015-16 to 2016-17 was inter-alia contributed by change in tax policy/structure such as increase in service tax rate and introduction of new levy/cess like Infrastructure Cess, Swachh Bharat Cess, Clean Environment Cess and Krishi Kalyan Cess. For short fall in Indirect Taxes between 2017-18 and 2019-20, Ministry cited policy related factors such as reduction in duty rates on Free Trade Agreements (FTA) imports, impact of Export Promotional Schemes, reduction in Basic Excise Duty on Petrol and Diesel (during 2017-18 and 2018-19) and impact of transitional credits under GST regime. Ministry also stated that Index of Industrial Production (IIP) for 2019-20 registered negative growth and import volumes started declining towards the end of financial year due to onset of Covid-19 across the globe.

The receipts from the Central GST taxes, however, decreased by INR 50,243 crore (8.34 per cent) in FY21 over the previous year. As for 2020-21, Ministry stated that since March 2020 GST collections had been severely hit by low economic growth due to Covid-19. However, GST collections had gained momentum in the second half of FY 2020-21 after V-shaped recovery. Further, Excise Duty was raised on Petrol and Diesel in March and May 2020, which contributed to healthy growth in Central Excise revenue. With respect to Customs, Ministry stated that Government had made concerted efforts to rationalise customs exemptions and a large number of exemptions had been removed. Further, policy changes like introduction of Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR), extensive application of Risk Management System (RMS)21, etc., had helped in garnering additional revenue.

Audit further noticed that the Central GST taxes revenue as a percentage of GDP continued to decline during the last three years to 2.79 per cent in FY 21 from 2.95 per cent in FY 20 and 3.02 per cent in FY19. Buoyancy in Central GST taxes revenue, therefore, is an area of concern and needs to be addressed by the GST Council. When pointed out by CAG (December 2021), the Ministry stated (February 2022) that as per GST laws and procedure, the GST rates on goods and services are determined by the GST Council. Initially, the GST rates were fixed based on pre-GST tax incidence and revenue neutrality of the rates. Since the inception of GST, a number of rate rationalisations have been done on the recommendations of the GST Council, which has led to a shortfall in GST revenue. Rates have been reduced significantly, where relief of about INR 92,000 crore per year till July 2019 had been given. As regards FY21, Ministry attributed the shortfall in GST collections to nation-wide and regional lockdowns to contain the spread of Covid-19.