Economy: GST collections: wait for the pudding - Kotak

GST monthly run-rate at around Rs917 bn for FY2018

Combining the monthly press releases until February (from PIB) and cash accounting based data for the center for April-December 2017 (from CGA), we conclude that the monthly run-rate for FY2018 (Jul 2017-Feb 2018) is likely around Rs917 bn. A finer estimate will be available with the February and March releases of the CGA but it is unlikely that the run-rate will significantly deviate. Our FY2018 estimates assume that the central government maintains its FY2018RE targets of Rs2.2 tn of CGST and Rs1.6 tn of unallocated IGST (as indicated in the FY2019 union budget) by shifting part of the unallocated IGST pool into CGST and SGST.

Monthly run-rate of around Rs1.1 tn likely required in FY2019E

We estimate total GST collection at Rs13.3 tn in FY2019. This implies a monthly run-rate of Rs1,107 bn (growth of 21% over FY2018 run-rate). We maintain CGST (Rs6.0 tn) and unallocated IGST pool (Rs500 bn) as per the union budget. Further, we estimate SGST collections at (Rs5.8 tn) based on our analysis of the recently released states' FY2019 budgets. We believe that this mix of revenues is conservative. It is not a given that the states will necessarily have a lower run-rate than the center, especially when most of the refunds/tax credits should be normalizing through the year. In the absence of any significant pickup in the run-rate from the first few months of FY2019, the center's (as well as overall) collections will be at significant risk.

Early buoyancy from compliance improvements key to achieving FY2019 estimates

From a monthly run-rate of Rs917 bn in FY2018, a sharp pickup in revenues from the start of FY2019 is required to achieve the budget targets. We highlight an indicative scenario with and without revenue buoyancy in achieving the estimated FY2019 GST collections. We note that the first monthly reading for FY2019, which will be for March 2018, will likely be higher than the trend (year-end effect). It is possible that without early buoyancy (beyond the March effect), revenues could miss the FY2019 target by around Rs200-250 bn. While one may argue on the extent of buoyancy required, it is imperative that compliance positive measures such as e-way bill, invoice matching, etc. shore up the revenues at the earliest.

Remain cautious on the fiscal situation until GST run-rate picks up

We hope the implementation of the interstate e-way bill (from April 1 onwards) pushes up the monthly GST collections. However, other compliance positive measures such as intra-state e-way bill, invoice matching, streamlining of GST filing mechanisms, etc. need to be implemented at the earliest too for the full benefits of the GST framework to be visible. We remain cautious in our estimates and maintain central GFD/GDP estimate at 3.5% for now. The concerns on fiscal slippage (and associated funding of the deficit) continue though markets may feel a temporary relief through the reduction in dated security borrowings. We will reevaluate our estimates as further data on GST revenues (and other budgetary items) are released.

Source : Equity Bulls

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