Finance news update:
Dispelling the myth that the Centre exclusively retains all Goods and Services Tax (GST) collections, Finance Minister Nirmala Sitharaman highlighted the substantial contribution of GST to state revenues, amounting to Rs 46.56 lakh crore from FY19 to FY24. Sitharaman emphasized that without GST, states’ revenue from subsumed taxes for the period of FY18-19 to 2023-24 would have been Rs. 37.5 lakh crore, whereas with GST, the actual revenue reached Rs. 46.56 lakh crore, as stated on the microblogging site X.
Sitharaman’s remarks came in response to the achievement of gross GST collections surpassing Rs 2 lakh crore in April due to increased economic activity. She clarified that states receive the entirety of the State Goods and Services Tax (SGST) collected within their respective borders, and about 50 percent of the Integrated Goods and Services Tax (IGST) on inter-state trade. Moreover, a significant portion of Central GST (CGST), approximately 42 percent, is devolved to states based on the recommendations of the Finance Commission.
Highlighting the positive impact of GST on tax buoyancy, Sitharaman noted an increase from 0.72 (pre-GST) to 1.22 (2018-23), leading to enhanced revenue for states despite the conclusion of the five-year compensation period.
Despite the GST rate falling below the prescribed Revenue Neutral Rate and facing the impact of COVID-19 on revenues, GST collections as a percentage of GDP have now reached pre-GST levels, both in net and gross terms. This illustrates that through improved tax administration, both the Centre and States can achieve the same revenue collection with a reduced burden on taxpayers, stated the finance minister.
The effective weighted average GST rate has consistently decreased since 2017. Initially suggested to be 15.3 percent, it stood at 14.4 percent in 2017 and dropped further to 11.6 percent in 2019.
Compared to pre-GST rates, GST reduced taxes on many essential items. Essential commodities like hair oil and soaps witnessed a tax reduction from 28 percent to 18 percent. The tax rate on electrical appliances decreased from 12 percent to 31.5 percent pre-GST. Similarly, movie tickets also faced lower taxation. GST exempted numerous essential items and services such as unbranded food items, essential drugs, healthcare, education, public transport, sanitary napkins, hearing aid parts, and agricultural services.
The finance minister highlighted GST as a testament to Cooperative Federalism in India, empowering states. She ensured equitable representation of all states’ voices without bias as Chairperson of the GST Council.
With a 75 percent majority vote requirement, the GST Council allocates one-third voting power to the Centre and two-thirds to states. Out of 52 meetings, all decisions but one were made through consensus.
GST streamlined 17 taxes and 13 cesses into a five-tier structure, simplifying the tax regime. The turnover threshold for registration increased to Rs 40 lakh for goods and Rs 20 lakh for services from an average of Rs 5 lakh under VAT. GST significantly reduced the number of different submissions across states to just 12.
Simplified compliances were achieved through uniform processes, straightforward registration, single returns, and a fully IT-driven system with minimal physical interface.
The Quarterly Returns with Monthly Payment (QRMP) scheme, with reduced compliances, benefitted over 44 lakh small taxpayers and MSMEs. GST facilitated MSME financing through tools like e-invoicing, TReDS, and the Account Aggregator framework. The number of registered taxpayers under GST increased to over 1.4 crores from 65 lakhs in 2017.
According to a Deloitte Survey (2023), 88 percent of MSMEs credited GST for cost reductions and optimized supply chains.
The E-way bill system eliminated inter-state checkpoints, decreasing logistics costs. This led to a 44 percent increase in daily truck travel and reduced corruption at tax checkpoints. Consequently, domestic inter-state trade in goods surged to 35 percent of GDP in FY22, up from 23.5 percent in FY18.
The concept of GST was initially proposed during the former PM Atal Bihari Vajpayee-led NDA government. Despite the UPA’s failure to achieve political consensus on GST in 10 years, under the leadership of Prime Minister Narendra Modi, the necessary consensus was meticulously built, and GST Acts were passed by Parliament in 2016.
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