The rising GST receipts have been a topic of discussion in the country for some time. According to data released on May 1, 2024, GST receipts in the country have crossed ₹2 lakh crore mark for the first time and reached ₹2.10 lakh crore. This is an increase of 12.4% compared to this month last year. GST collection after refunds are at ₹1.92 lakh crore in April 2024, which shows an increase of 15.5% compared to April 2023. Although since the inception of GST, its receipts have been increasing continuously, but in FY24, GST receipts are ₹20.18 lakh crore, which is 11.7% more than ₹18.1 lakh crore in FY23. It is worth noting that the receipts of FY23 were 22% more than FY22.

In July 2017, most indirect taxes (tax on goods and services) of the country were merged, and GST was imposed in its place. This GST is divided equally between the Center and the states. Apart from that, as per the recommendation of the Finance Commission, there is a provision to transfer a certain percentage of the taxes imposed by the Center (which is currently 42%) to the states. According to this also, the states get a large share of GST, compared to Union.

Components of GST

If we try to understand the various parts of GST, then in April 2024, out of the total GST receipts of ₹2.1 lakh crore, Central GST is ₹43,846 crore, State GST is ₹53,538 crore, Integrated GST is ₹99,623 crore, out of which ₹37,826 crore is being received from GST on imported goods. Apart from this, ₹13,260 crore was received in the form of cess, out of which ₹1,008 crore was received from cess on imported goods.

Why and how does GST increase?

GST is levied on goods and services. Its specialty is that it is levied on every value addition in the production process.

Increase in production

It is natural that as production or import of goods and services increases in the country, GST receipts increase even if the GST rate remains the same. In the last few years after Covid, GDP growth has not only improved, but India has consistently remained the fastest growing economy among the big economies. GDP growth was recorded at 9.1% in FY22, 7% in FY23. According to advance estimates, GDP growth has been estimated to be 7.6% for FY24. All sectors contributed to this growth. The rate of industrial growth has increased in the last few years. The Index of Industrial Production has reached 153.0 by January 24 as compared to 126.1 in April 2021. Significant growth is also being seen in the service sector. It is not unnatural for GST receipts to increase due to the growth in industrial and service sectors.

Increase in prices

Since GST is levied on the price of goods, it increases not only due to increase in production of goods and services but also due to inflation i.e. increase in prices. Inflation rate in the country has also  been high in the last three years. This increase has been less due to domestic factors and more due to global trends. Most of the countries of the world including US, Europe are struggling with inflation. But whatever the reason, inflation is also causing some increase in GST.

Formalisation of the economy

A large part of India’s economy has been informal, and to some extent it is so even today. But for some time now, due to some natural reasons and to some extent due to the implementation of GST, formalisation of the economy has increased. It has to be understood that the credit of GST levied on intermediates can be availed in the production, only when all the participants involved in the production process are registered for GST. Due to this reason also, formalisation of the economy has increased, resulting in GST receipts to increase.

Are imports in the country also the reason for the increase in GST?

It has been observed that GST receipts also include tariffs and cess imposed on imports. The total GST receipts from imports in April 2024, including cess, are ₹38,834 crore. If it is said that increasing imports are also one of the reasons for the increase in GST, then this is not ratified by the data. It is worth noting that while the GST receipts from taxes on imports in April 2024 were ₹38,834 crore, the average GST (including cess) from imports in the entire FY24 was ₹41,327 crore per month. Earlier in FY23, the average GST (including cess) from imports was ₹40,196 crore per month.

GST Both Buoyant and Elastic

However, since the adoption of GST system, there were a lot of upheavals in receipts of GST in the country. But GST receipts continued to increase and considerable growth is also being seen. While the growth in GST receipts in FY24 was 11.7%, it was 22% in FY23, and 30% in FY22 (though largely due to low base effect, post Covid). It can be assumed that generally the growth of GST receipts has been more than the GDP growth at current prices. With GST rates remaining the same, we can conclude that both buoyancy and elasticity of GST, with respect to GDP growth, is fairly high.  As per the economic jargon, this is a welcome characteristic of a tax system, say GST. This indicates that now with increase in the scope of GST, receipts from GST are increasing automatically.

Ashwani Mahajan, Professor, Department of Economics, P.G.D.A.V. College (University of Delhi)

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