NEW DELHI: As the monthly GST collections surged past `2 lakh crore in April, the debate is over the reason for buoyancy seen in GST collections in the last few years with many attributing it more to the inflation than increased economic activities.
An analysis by The New Indian Express and its interaction with economists show inflation alone can’t be attributed for growth of GST over the years. Growth in GST is mainly due to improved compliance, plugging of loopholes used for evading taxes and improved economic activities. Inflation helps in better tax collection, but in 2023-24, the impact of it was subdued.
The analysis shows gross GST collections rose by 11.65% in FY24, but after adjusting for inflation (arrived through GDP deflator) the growth comes down to 10.28%. In FY23, the impact of inflation is more prominent on GST growth as inflation-adjusted growth in GST was 15.12% against 21.9% without inflation.
GST collections growth can be gauged by the fact that average monthly revenues in 2017-18 (the year it was implemented) was Rs 82,294 crore, more than doubled to Rs 168,187 crore in 2023-24. Sunil Kumar Sinha, principal economist, India Ratings, says if nominal GDP growth goes up and tax buoyancy is maintained, revenue would get a boost. He says this is true for all taxes.
Nominal GDP is calculated at current prices, thereby, it includes the impact of price rise. Debopam Chaudhury, economist at Piramal Enterprises, admits that inflation has played a role in better GST collection but it is not the only reason. “If we were to convert nominal GST inflows into real values using GDP deflator, annualised real GST growth in the last four years turns out to be 8.4%as against 14% without this adjustment,” says Debopam Chaudhary.
However, he is quick to point out that improved compliance and heightened efforts to plug leakages are bearing fruits. The proportion of taxpayers, who filed GST on time out of all filers, rose from 60% in April 2019 to 95% in January 2024.
The number of registered taxpayers has grown from 1.23 crore in October 2019 to 1.45 crore as on March 31, 2024. Sunil Sinha of India Ratings says due to several flip flops (on tax rates) in the initial years and leakages due to fraudulent claims of input tax credit, the GST system could not realise its real potential.