• Notification Date: 25-01-2024
• Notification No: N/A

GST Cess as an Opportunity

The performance of the goods and services tax (GST) regime has looked up in the last couple of years. In 2018-19, a year after its launch in July 2017, GST collections were estimated at about 6.22 per cent of India's gross domestic product (GDP). After weathering the headwinds of two rounds of politically-induced rate cuts without any rationalisation or reduction in the multiplicity of rates and the Covid pandemic, GST collections in 2021-22 rose to 6.3 per cent of GDP. A year later, it was further up at 6.6 per cent. And in the first half of 2023-24, GST collections have been estimated at almost 7 per cent of GDP. 

Indeed, the pace of recovery in GST collections has been faster than that of India's overall tax revenues. The combined tax collections of the Centre and the states were estimated at 17.35 per cent of GDP in 2018-19. Four years later, this share was yet to cross that level, hovering at around 17.13 per cent in 2022-23. In contrast, GST collections last year exceeded what they were four years ago. If the GST regime has done better than other taxes, it is clearly not just because of economic growth, but also because of the improved efficiency in collection with the use of digital tracking of taxpayers and a widening of the tax base. 

Of course, as Arvind Subramanian and his coauthors argued on this page on January 1, the actual collections on average are less than the total revenues under this head by 0.6-0.7 per cent of GDP, primarily because of refunds. These refunds take place because exports under the GST regime are zero-rated and hence any GST paid on products or services, which are eventually exported, is refunded.