GST revenues: Growing uncertainty
The slow revenues of GST would mean greater government debt and, consequently, a worsening of the fiscal deficit situation. A delayed implementation of the e-way bill will allow more preparation time for companies that are already fed up with the government’s ad hoc decisions on the subject.
On the other hand, it leaves one wondering how long it will take to stabilize the GST revenue collection (taxes on goods and services). Distrustful of the decline in GST tax collections, the GST Council in December last year advanced the implementation of electronic invoices from its originally scheduled date of April 1 to February 1, 2018.
But the e-way bill portal failed the test of fire and once again, the deployment had to be deferred.
Last week, the group of ministers overseeing developments related to GST recommended that the electronic invoice for the interstate movement of goods be put into effect as of April 1 of this year.
Implementation of intrastate electronic invoices
A final decision on the date of the GST Board meeting on March 10 is likely to be made. There is still not much clarity in the implementation of intrastate electronic invoices and the invoice matching system. The revenue entry of the new fiscal regime has been below expectations so far. The official data of the GST collection for the month of January have not yet been announced.
As shown in the attached chart, there is no clear trend in GST revenue collection, which was more or less expected given the initial problems.
But the concern is that despite government efforts to close tax leaks and increase compliance, it is difficult to predict whether collections will begin to stabilize next fiscal year or so.
We reestablish our opinion that the assumptions of GST for fiscal year 201019 (budgeted estimates) are on the upper side.While we do not rule out a rise in compliance, it is unlikely that it will feed on the beginning of the year.
This will complicate the arithmetic The July-November data indicate (on a cash basis) that the monthly execution rate is around Rs940 billion and the execution rate of FY2019E is likely to be Rs1.1 billion, which implies a growth rate of around 17.4% This goal could be difficult to achieve if compliance does not resume from the beginning of the fiscal year 2019, “said a Kotak Institutional Equities report dated February 21.
If GST revenues do not achieve an adequate recovery in fiscal year 19, it could mean a condemnation for the markets. The slow revenues of GST would mean greater government borrowing and, consequently, a worsening of the fiscal deficit position. This, together with high inflation, is a perfect recipe to scare the bond market and raise yields on 10-year bonds.
In a domino effect, the Indian stock markets could see a pronounced correction. Equity analysts have reiterated the downside risks emanating from the deterioration of macros due to low GST revenues. The fate of India’s costly stock valuations now depends much more on macroeconomic conditions than the long-awaited revival of corporate profits.