GST collections remain encouraging

While welcoming both these developments unequivocally, the occasion should be used to push the envelope on making GST more simple and business friendly

Goods and Services Tax (GST) collections in December — they capture economic activity in November — were ₹1.49 lakh crore. This is the 10th consecutive month when GST collections crossed the ₹1.4 lakh crore mark. The fact that GST collections have not gone below this threshold despite a widespread belief that economic growth will slow down from the December quarter onwards raises the welcome question: Has the GST regime turned a new leaf as far as tax collections are concerned?

Goods and Services Tax (GST) collections in December — they capture economic activity in November — were ₹1.49 lakh crore (BLOOMBERG NEWS)

Logically speaking, this can be a result of two factors: Better compliance leading to a fall in tax evasion and/or a widening of the GST net. There have been multiple reports of tax authorities trying to achieve the former. As far as the widening of the tax net is concerned, this could be a positive effect of the increasing formalisation of the economy.

While welcoming both these developments unequivocally, the occasion should be used to push the envelope on making GST more simple and business friendly. Reducing the number of slabs and achieving it in a revenue-neutral framework is an important challenge here. Given the nature of the GST administration — the GST Council includes both central and state governments and decisions mostly have to be unanimous — it’ll take a lot of consensus-building and investment of political capital to achieve this objective.

To be sure, a final verdict on whether GST has broken out of its initial revenue disappointment must be reserved to account for two future possibilities. High inflation, like all taxes, has generated tailwinds for GST collections and how nominal collections hold after inflation has moderated will be important. GST also still includes the compensation cess which will eventually be phased out and may lead to some moderation in collection. But, all in all, the recent numbers tell an encouraging story.