The Goods and Services Tax (GST), the much-touted indirect tax reform that took a decade to realise, finally seems to be paying the dividends—five years after its implementation. The September GST collection at `1.47 lakh crore is the seventh in a row when monthly collections have been over `1.4 lakh crore. In the first six months of FY23, the collections have averaged `1.49 lakh crore—almost `25,000 crore more than the entire year average of `1.24 lakh crore in FY22. This is a big jump given that average monthly collections, even in the pre-Covid era, were around `95,000 crore.
The disruption created by the implementation of the new indirect tax regime in 2017 was expected to shrink the revenue collection in the first couple of years. Still, it took much longer than that for the revenues to stabilise at a healthy average of above `1 lakh crore. This delay could be attributed to the government’s many mistakes in the early days of GST implementation. The biggest of them all was frequent chopping and changing in the rates. Under pressure from both businesses and the public, the government made many unnecessary changes—including lowering GST rates on several items, keeping some goods and services out of the ambit of GST, etc.
Within two years, the government realised, as also pointed out by the Finance Commission report, that average GST rates (at 11.6%) were much below the revenue neutral rate of 15.3%. But it took them a while to reverse some of the ‘mistakes’, including lowering rates. The rates rationalisation process began a year ago, and now after a few rounds of increases in GST rates, revenues have started showing healthy growth.
The crackdown on evasions and wrongful claiming of input tax credits also helped the government shore up collections. At the peak of Covid-19 in 2020–21, the GST authorities, armed with data analytics tools, went hard after the evaders. This was followed by efforts like e-invoicing, which required each B2B invoice to be uploaded on the GST portal, further removing the scope for manipulation. Better monitoring and rate rationalisation have helped the government increase GST revenues recently—of course, also supported by high inflation. Now, the Central government would be hoping that states lower their anti-GST stance and stop asking for more compensation.