How real is the GST boost?

News:  The government is delighted over the steady improvement in the collection of goods and services tax (GST) in recent months

GST collections have crossed the Rs 1-trillion mark for each of the last six months beginning July 2021.

The buoyancy in GST collections provides the much-needed revenue cushion to government finances and for preparing the next year’s Budget.

However, an analysis of GST tax collection over a three-year period reveals that the share of GST collections in GDP is not a cause for any excitement.

Because, from 6.22 per cent of GDP in 2018-19, it fell for two consecutive years to 6 per cent in 2019-20 and 5.75 per cent in 2020-21.

The ratio of GST to GDP is the true indicator of measuring how tax revenues have kept pace with the economy’s growth.

What are the other issues related to GST collection?

GST collections take place under four broad categories: Central GST (CGST), State GST (SGST), Integrated GST (IGST) and Compensation Cess. There is the need for specific administrative as well as policy interventions in each of these areas.

First, the issue of slower growth in SGST owing to the inefficient tax collection machinery that many states may be burdened with.

Second, the issue of lower growth rate in IGST collections on inter-state supplies. On the contrary, IGST for imports has increased.

Possible reasons for higher growth in IGST collections: Rise in India’s imports, higher tariffs, Ease of tax collection at ports.

Third, the issue of stagnation in the collection of compensation cess.

Source: This post is based on the article “How real is the GST boost?” published in Business Standard on 12^th Jan 2022.