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India's GST Revenue Buoyancy: An Economic Indicator



  Nov 04, 2023

India’s GST Revenue Buoyancy



Understanding the Buoyancy of GST Revenues in India

1. What is GST, and why is it significant for India?

Goods and Services Tax (GST) is a comprehensive tax levy on the manufacture, sale, and consumption of goods and services. It serves as an indicator of economic growth in India and aims to simplify the tax structure by eliminating cascading tax effects.

2. How have monthly GST collections trended over the years?

GST collections have shown varying trends:

The average monthly GST collection during the first half of 2023-24 was ₹1.65 trillion, a new benchmark.

In the pandemic years, collections initially dropped from ₹1.20 trillion in 2018-19 to ₹0.98 trillion in 2019-20, but rebounded as the economy regained momentum.

3. Has the GST regime brought about improved revenue buoyancy?

Yes, since the implementation of GST, there has been greater tax buoyancy. The Centre and states have experienced an increase in revenue buoyancy, which has facilitated consolidation of the country’s financial position.

4. What did the Finance Minister say about the current GST collections?

Finance Minister Nirmala Sitharaman mentioned that there’s been a reduction in the tax burden on consumers, leading to increased revenue buoyancy. Notably, in the first half of 2023-24, the revenue realized from GST was 11.20% more than the previous year.

5. How is tax buoyancy measured?

Tax buoyancy measures the responsiveness of tax revenue to changes in national income or GDP. A buoyancy of more than one indicates that tax revenue grows faster than GDP, implying an efficient tax regime.

6. How do GST revenues compare with the pre-GST era in terms of GDP?

While the average monthly GST collection has been exceeding the pre-GST revenue benchmark, there is a notable difference when evaluated against GDP. For instance, the GST revenue growth in 2016-17 was 6.80% of GDP, which improved to 6.63% in 2022-23.

7. Are there recommendations for refining the GST structure?

Yes, it’s suggested that the government should consider rationalizing the current GST slabs. A three-rate structure, including a standard rate, a merit rate, and a demerit rate, could be more effective and align with the recommendations of the 15th Finance Commission.

Conclusion: The GST regime has indeed brought about a significant improvement in tax buoyancy in India. Continuous evaluations and refinements, based on economic trends, will further optimize its impact on the economy.

SRIRAM’s


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