India’s goods and services tax collections are on a tear. In April, revenues touched an all-time high of Rs 2.36 lakh crore, registering an increase of 12.6 per cent over the previous April. The surge reflects strong domestic consumption, increasing formalisation of the economy and better compliance.
Though the buoyant haul reflects an ongoing recovery and growth, much of the increase was due to the year-end reconciliation process when businesses typically align their tax returns, resulting in additional tax payments. Besides, the notable figures may have also been bumped up by the substantial exports to the US ahead of the announcement of reciprocal tariffs.
In the months ahead, a moderation in absolute GST collections is anticipated due to global economic headwinds, even as the overall outlook for the Indian economy remains optimistic. Given minimal disruptions, the government’s budget forecasts of a 11 percent rise in GST revenue, with collections touching Rs 11.78 lakh crore this fiscal, should not be a tough task.
While the buoyancy in collections is expected to sustain, what’s concerning is the delay in the GST Council’s decisions. It’s expected to convene once every three months, but is not doing so. The last meeting was held in December and the next is expected later this month or the next, which is a gap of nearly six months.
The delay is raising concerns over clarity on critical issues such as rate rationalisation. For instance, following the personal income tax relief in the February budget, none other than Finance Minister Nirmala Sitharaman confirmed that GST rates will fall further. She also reasoned that the revenue-neutral rate, at which tax revenue remains the same despite changes in tax laws, reduced from 15.8 percent in 2017 to 11.4 percent in 2023; more correction is expected.
A ministers’ group set up for this task has submitted its report, but analysts expect the need for at least two or three council meetings to arrive at a final decision. The next meeting, whenever it happens, must take up the rationalisation process including reducing tax slabs and streamlining rates. For one, it should take a call on lowering the rate on health and life insurance premiums from 18 percent to 5 percent. And the long-delayed GST Appellate Tribunal needs to be set up soon, as its absence affects both taxpayers and the government.