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GST Contribution to GDP: Understanding its Economic Signific



  Aug 17, 2023

Goods & Services Tax (GST) and Its Share in the GDP


Q: What is the current status of GST's contribution to GDP?

A: A Finance Ministry report indicates that GST's share in GDP has reached 3.1% in FY23, while personal income tax also stands at 3.1%. This indicates a significant role of GST in indirect taxes.
 

Q: How do economists explain this trend?

A: Economists attribute this trend to factors like consumption demand, compliance improvements, and the impact of inflation. The sustained increase in GST is seen as a result of transparent tax administration and economic growth.
 

Q: How do direct and indirect taxes differ?

A: Direct taxes, such as corporate and personal income tax, are progressive taxes where tax incidence rises with higher income. Indirect taxes, including GST, are regressive, levied based on goods' categories or values rather than consumer income.
 

Q: What is the estimated tax buoyancy?

A: The overall tax buoyancy is projected at 0.99. As GST collections stabilize, it's expected to boost indirect tax collection with an estimated GST buoyancy of 1.14 in the next year.
 

Q: What proportion of Gross Tax Revenue do direct and indirect taxes contribute?

A: In the upcoming fiscal year (FY24), direct and indirect taxes are estimated to contribute 54.4% and 45.6%, respectively, to Gross Tax Revenue.
 

Q: What are the potential positive and negative impacts of increasing GST?

A: The increase in GST is seen as a cumulative effect of transparent tax administration, economic growth, and increased consumption at lower income levels. While it can have positive effects, such as revenue generation, it may also lead to higher prices and impact consumer purchasing power. Monitoring its impact on inflation and businesses is important to avoid negative consequences.


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