The Goods and Services Tax (GST) appears to have had an immediate and significant impact on economic growth, according to tax analysts and government officials.
The fiscal second quarter (July-September), which coincided with the July 1 roll-out of GST, saw GDP growth accelerate to 6.3%, from 5.7% in the first quarter. The new indirect tax regime had an impact — both in terms of the methodology of calculating GDP, as well as on the performance of the input parameters themselves.
‘Uncertainty over GST’
“In a normal year, businesses are conversant with the tax processes, and so know their tax liability, so the collections are usually in line with what is anticipated,” TCA Anant, Chief Statistician of India and Secretary to the Ministry of Statistics and Programme Implementation, said on Thursday. “However, this year, the uncertainty surrounding GST procedures, and the leeway the government has given in terms of extended deadlines, has meant that the indirect tax collections for the particular period are still being updated.” Gross Domestic Product (GSP) is calculated by adding the indirect taxes figure to Gross Value Added (GVA), and subtracting subsidies, Mr. Anant said, highlighting the reason that GST collections are so crucial for accurate GDP computation.
“On the one hand, there would possibly have been some disruption in the early days of GST due to the uncertainty surrounding the new processes,” Anis Chakravarty, Lead Economist at Deloitte India, told The Hindu . “On the other hand, net taxes are added back to the GVA and somewhat lower collections on the GST front could have had some dampening effect as compared to a non-GST year.”
Mr. Anant said the GDP data for the second quarter could see an upward revision when the government released its revised estimates as it would reflect the final indirect tax collections — a figure that would include the taxes collected from late filers as well.
“The Q2 growth pick up is almost entirely due to the growth pick up in manufacturing, which came to a standstill prior to GST due to destocking,” D.K. Srivastava, Chief Policy Advisor at EY India, said. “When GST got implemented, then orders started flowing in and growth picked up. So, GST has had a major impact on this quarter’s growth rate. In the coming quarters, the GST reforms in terms of rates and compliance should play a significant part in manufacturing sector growth.”
Mr. Anant said services was another area impacted by GST as earlier sales tax data was used to gauge activity.