GST marks 7 years: simplification and challenges persist

GST marks seven years: Introduced on July 1, 2017, the Goods and Services Tax (GST) has significantly streamlined India's tax landscape by consolidating 17 taxes and 13 cesses into a structured 5-tier system. Over the past seven years, GST has boosted compliance, increased tax buoyancy, and elevated state revenues, with registered taxpayers soaring from 65 lakh to 1.46 crore.

Monthly GST revenues have surged from Rs 90,000 crore in 2017-18 to Rs 1.90 lakh crore in 2024–25, reflecting improved tax efficiency. The GST regime, with a pre-GST tax buoyancy of 0.72, has now risen to 1.22 (2018–23), sustaining state revenues buoyantly at 1.15. Without GST, states would have received ₹37.5 lakh crore from subsumed taxes; however, actual revenues under GST reached Rs 46.56 lakh crore.

Despite these gains, challenges persist, notably in combating fake invoices and fraudulent registrations, which undermine tax integrity. In 2023, the Directorate of GST Intelligence uncovered tax evasion exceeding Rs 1.98 lakh crore, leading to 140 arrests across various sectors like online gaming, casinos, insurance, and manpower services.

The establishment of GST appellate tribunals aims to streamline dispute resolution, although operational challenges remain for these institutions.

Ranjeet Kumar Agarwal, President of the Institute of Chartered Accountants of India, stressed the role of capacity building in fostering a transparent tax regime. "With FY 23–24 witnessing a total GST collection of Rs 20.18 lakh crore, averaging Rs 1.68 lakh crore monthly, India's GST ecosystem is maturing," Agarwal noted.

As GST evolves, stakeholders continue to navigate the complexities, ensuring compliance and contributing to India's economic growth trajectory.

GST Revenues Reach Record Highs

In the fiscal year 2023-24 (FY24), GST revenues soared to an all-time high of Rs 20.2 trillion. Despite a slight deceleration, growth remains robust, consistently exceeding 10 percent. This remarkable revenue performance underscores the resilience and effectiveness of the GST system in enhancing tax compliance and expanding the tax base.

The Impact of E-Way Bills

The introduction of electronic way (e-way) bills on April 1, 2018, marked a pivotal moment in streamlining goods transportation across India. E-way bills have significantly increased both intrastate and interstate transactions, with a particularly sharp rise in intrastate movements. This system has not only improved logistical efficiency but also bolstered revenue collections by reducing tax evasion and enhancing transparency.

Cess Collections on the Rise

Cess collections, which contribute to the compensation of states for revenue losses due to GST implementation, have consistently exceeded Rs 1 trillion since FY22. This steady rise highlights the GST's capacity to generate substantial funds for critical state-level initiatives and development projects.

Growth Disparities Between CGST and SGST

Both central GST (CGST) and state GST (SGST) continue to exhibit year-on-year growth, albeit at differing rates. The disparity can be attributed to variations in collection efficiency between the central government and individual states. Central collections have grown slightly faster than state collections, reflecting the need for some states to enhance their administrative capabilities and enforcement mechanisms.

GST's Contribution to GDP

The percentage share of GST in India's gross domestic product (GDP) provides valuable context for understanding its economic impact. In FY24, GST collections were equivalent to 3.25 percent of GDP, up from 3.08 percent in FY19. This increase demonstrates the growing significance of GST in India's overall economic framework and its role in driving fiscal stability.

Understanding GST Buoyancy

GST buoyancy, a measure of how GST receipts grow relative to nominal GDP, declined from 1.6 in FY22 to 1.3 in FY24. Higher buoyancy indicates that GST receipts are growing faster than the nominal GDP, reflecting improved tax compliance and collection efficiency. Despite the recent decline, the overall buoyancy remains a positive indicator of the tax system's health and effectiveness.

State-Wise GST Collections

A state-wise analysis by rating agency CRISIL reveals that Maharashtra, Karnataka, and Uttar Pradesh are among the top performers in GST collections. However, when adjusted for population, other states show stronger performance, indicating diverse consumption patterns and varying spending abilities across regions. This highlights the need for tailored approaches to maximize GST revenue potential in different states.

Tax Rates on Consumer Items

A recent study indicates that most consumer items face low or no GST taxes, with less than 3 percent of consumption items attracting the highest tax rate of 28 percent. This finding suggests that the GST regime is designed to be consumer-friendly, minimising the tax burden on essential goods while ensuring higher taxes on luxury items.

As India marks seven years of GST, the tax system has undeniably transformed the country's economic landscape. From record-high revenues to enhanced logistical efficiency through e-way bills, GST has proven to be a cornerstone of India's fiscal strategy. While challenges remain, particularly in harmonising state and central collections and improving collection efficiency, the overall impact of GST on India's economy is profoundly positive.