GST Collections Reach Pre-GST Levels as a Percentage of GDP
Union Finance Minister Nirmala Sitharaman recently highlighted the significant progress and impact of the Goods and Services Tax (GST) regime in India. Addressing the media on Monday, Sitharaman noted that GST collections as a percentage of the Gross Domestic Product (GDP) have returned to pre-GST levels. She emphasized that GST has been instrumental in bolstering state revenues and exemplifies cooperative federalism.
Operationalization of GST Appellate Tribunal
On the same day, Sitharaman administered the oath to Justice (Retd) Sanjaya Kumar Mishra as the President of the GST Appellate Tribunal (GSTAT). This marks a significant milestone in the GST journey, ensuring a dedicated body to address GST-related disputes. The establishment of GSTAT comes nearly seven years after the GST’s rollout in July 2017, providing a structured mechanism for resolving tax disputes.
Milestone Achievements in GST Collections
The Finance Minister also highlighted the robust growth in monthly GST collections, which recently surpassed the Rs 2 lakh crore mark. According to the Finance Ministry’s data for April, released on May 1, this achievement underscores the effectiveness of the GST system.
Economic Impact and Cooperative Federalism
Sitharaman took to social media platform X, formerly known as Twitter, to elaborate on GST’s economic impact. Despite challenges such as a lower than prescribed Revenue Neutral Rate and the economic disruptions caused by COVID-19, GST collections have reached their previous levels. This achievement, she stated, is a testament to the improved tax administration by both the Centre and the states, resulting in higher revenues without increasing the tax burden on citizens.
She further clarified a common misconception, stating, “It is a myth that all GST collections are pocketed by the Centre. GST significantly contributes to state revenues. States receive 100% of the State GST (SGST) collected, approximately 50% of the Integrated GST (IGST), and 42% of the Central GST (CGST) as per the Finance Commission’s recommendations.
Improved Tax Buoyancy and Pro-Poor Approach
Sitharaman emphasized that GST has enhanced tax buoyancy for states, rising from 0.72 pre-GST to 1.22 between 2018 and 2023. Even after the end of the compensation period, state revenues have remained buoyant at 1.15. She highlighted that without GST, states’ revenue from subsumed taxes from FY19 to FY24 would have been Rs 37.5 lakh crore. With GST, the actual revenue amounted to Rs 46.56 lakh crore, reflecting a significant increase.
Highlighting the pro-poor approach of GST, Sitharaman noted that the effective weighted average GST rate has consistently declined from the initially suggested 15.3% to 11.6% in 2019. Essential items and services, such as unbranded food items, certain life-saving drugs, healthcare, and education, have been exempted from GST or subjected to reduced rates.
Former Chief Economic Adviser’s Perspective
Former Chief Economic Adviser Arvind Subramanian recently commented on GST revenues, pointing out that despite recovery from the pandemic, GST revenue for FY24 at 6.1% of GDP has not yet surpassed pre-GST levels. He stressed the importance of focusing on net revenues rather than headline collections.
GST Council’s Role and Future Prospects
As the Chairperson of the GST Council, Sitharaman assured that all states’ voices are heard equally, maintaining a balanced and cooperative decision-making process. The GST Council operates with a 75% majority vote requirement, with one-third voting power assigned to the Centre and two-thirds to the states. Out of 52 meetings, only one decision required a vote, indicating strong consensus-building.
In conclusion, Sitharaman reiterated that GST has led to lower taxes on many essential items compared to pre-GST rates. The National Anti-profiteering Authority has ensured that the benefits of tax rate reductions are passed on to consumers. With continuous efforts to rationalize tax rates and improve administration, GST stands as a pillar of cooperative federalism, empowering states and benefiting the nation’s economy.