When the Goods and Services Tax (GST) was launched in July 2017, a monthly collection of ₹1 lakh crore was the aspirational target. GST collections for the month of April 2024 have crossed ₹2 lakh crore for the first time. This makes it an important milestone in GST’s journey. What are the key takeaways from the monthly GST collection crossing this threshold?
goods and services tax (GST)
First, the obvious caveat: Any economy which has positive inflation and growth is bound to see a rise in GDP and tax numbers. This makes it necessary to go beyond the nominal tax numbers. On that front, the trends are anything but insignificant. The share of GST collections in India’s GDP was 6.9% in 2023-24. This is the highest this number has ever been since 2018-19, the first full fiscal year of GST roll-out. 2023-24 is also the third consecutive year when the share of GST in nominal GDP has increased. This shows that a significant part of the increase in GST collections has been driven by better compliance, perhaps even formalisation of the Indian economy.
As far as the monthly collection numbers are concerned, one can argue with some degree of certainty that they do reflect a healthy momentum in the economy. This conclusion is supported by other high frequency indicators about the economy such as Purchasing Managers’ Indices, which continue to be in the expansion zone. To be sure, April GST numbers are always higher because of the year-end factor and one will have to see whether the ₹ 2 lakh crore level becomes a norm next month onwards.
The first and second point, when read together, raise a more interesting and important question. If GST collections and architecture have indeed stabilised at a level where the government does not have to worry about GST’s contribution to the fiscal kitty, isn’t it time for a more holistic appraisal of India’s biggest indirect tax reform?
Many independent and credible voices have long argued that an ideal GST regime should have fewer tax rates and ideally even a lower peak rate. A move towards these goals could generate possible tailwinds for both ease of doing business and consumer demand. In India’s case, there is also an added complication of production heavy states losing out in the GST regime because it is a consumption-based tax. None of these questions can or should be decided in a hurry. Ideally, the GST Council and the 16th Finance Commission should discuss them thoroughly once a new government takes office .
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