GDP and GST: Revenues Lag Pre-GST Levels Despite October Collections

GDP and GST: Revenues Lag Pre-GST Levels Despite October Collections

Issue: To examine the overall revenue buoyancy of the Goods and Services Tax (GST) seven years after its implementation, assessing if the aggregated GST-to-GDP ratio has reached the levels of the taxes it replaced, and analyzing the differential revenue performance across various states.

Facts:

• The GST replaced numerous central and state indirect taxes (VAT, Excise Duty, Entry Tax, etc.).
• In the pre-GST regime (2015-16), aggregate revenue from the subsumed taxes was 6.5% of GDP.
• The 15th Finance Commission estimated a medium-term target GST-to-GDP ratio of 7%.
• October 2025 GST collection was ₹1,95,936 crores, a 4.6% increase over last October.

Decision:

A closer inspection of GST collections, supported by analysis from PRS Legislative Research, revealed that the aggregate revenue from GST still trails the pre-GST levels as a percentage of the country’s economic output, despite the strong October collection figures.

Key TakeDowns:

• Aggregate Revenue Decline: Aggregate revenue from the subsumed taxes (Centre and states) has declined from 6.5% of GDP (pre-GST) to 5.5% of GDP in 2023-24. This figure remains well below the target 7% GST-to-GDP ratio.
• State Revenue Performance (Worse Off): The average State GST (SGST) collection as a percentage of GDP over the seven years of GST (2.6%) has been below the average subsumed taxes (2.8%) from the four full years before GST.
• States Worst Affected: States like Punjab, Chhattisgarh, Karnataka, Madhya Pradesh, and Odisha have witnessed the biggest drop in their revenue from subsumed taxes as a percentage of GSDP (State GDP).
• States Gaining: Conversely, several North-Eastern states (Mizoram, Nagaland, Sikkim, Meghalaya, and Manipur) have seen an improvement in their subsumed tax-to-GSDP ratios post-GST, a trend attributed to the destination-based nature of GST.
• October Strength: The official release noted that industrial and service-oriented states like Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Haryana together contributed over 40% of the country’s total GST revenue in October.