GST Collections Hit by US Tariffs: What’s Next?
The impact of US tariffs on the global economy has manifested in India's GST collections for August 2023, revealing a notable 20% dip in export refunds. This decline is alarming, especially as the country grapples with the challenges posed by international trade dynamics. Despite an overall GST collection rise of 6.5% to ₹1.86 lakh crore, the lower earnings from imports and reduced refunds have raised significant concerns among economists and business leaders.
According to government data, while the gross domestic revenue increased by 9.6% to ₹1.37 lakh crore, the GST collected from imports fell by 1.2% to ₹49,354 crore. Saurabh Aggarwal, a tax partner at EY, highlighted the substantial dip in export refunds as a telling sign of the adverse effects that global tariffs are inflicting on India's export sector. He emphasized the critical need for the government to proactively tackle these external challenges to sustain the competitiveness of Indian exporters in the global market.
Furthermore, ICRA Chief Economist Aditi Nayar pointed out that while Central GST and State GST recorded robust growth, the Integrated GST (IGST) and cess collections have been lackluster. The puzzling contraction in IGST on imports occurred despite a significant rise in merchandise imports in July 2023, which should have been reflected in the August GST data.
The announcement of August's GST collections came just days before a crucial GST Council meeting, where there is an expectation for significant tax rationalization. Finance Minister Nirmala Sitharaman, who leads this grouping, is anticipated to simplify the current four-tier GST structure to just two tiers. Reports suggest that the government is contemplating reducing GST rates on around 175 items by at least 10 percentage points, which could include essential goods like hybrid cars, ACs, TVs, and personal care products.
This move is seen as timely, potentially enhancing consumer demand during the upcoming festive season. Deloitte India Partner MS Mani stated that the anticipated increase in consumer demand could lead to significant jumps in GST collections in the following months. However, he cautioned that the expected reductions in GST rates might temporarily moderate the overall collections.
In summary, the current GST landscape in India is under pressure from external factors like US tariffs, yet the government's proactive measures and impending reforms may provide a pathway to recovery and growth in the coming months.
