GST Collection Sparkles Despite Wholesale Cuts; Govt Foresees Marginal Shortfall From Budget Estimates, Upbeat About Oct Numbers

GST Collection Sparkles Despite Wholesale Cuts; Govt Foresees Marginal Shortfall From Budget Estimates, Upbeat About Oct Numbers

Issue: To assess the impact of the sweeping GST rate rationalization (GST 2.0), which reduced tax on over 99% of items, on the government’s expected annual revenue targets and the overall GST collection buoyancy.

Facts:

• The GST reforms, effective September 22, simplified the structure to essentially two broad slabs (5% and 18%).
• The rate cuts were strategically timed to coincide with the festive season to boost consumption.
• The Centre collected ₹1.89 lakh crore as GST in September, showing a 9.1% increase year-on-year.

Decision:

The government is confident that GST revenues will remain robust despite the rate cuts and expects any deviation from the FY26 budget estimates to be modest and manageable. Officials are particularly upbeat about October’s collection momentum.

Key TakeDowns:

• Consumption Boost Confirmed: The strength in collections confirms the policy achieved its primary goal: demand surged as intended, which is compensating for the lower tax incidence per transaction.
• Marginal Shortfall Forecast: Officials do not expect the shortfall to be as high as speculated, believing the revenue drag will be modest and potentially compensated by higher-than-budgeted non-tax revenue.
• Festive Trend Watch: Collections are traditionally higher during the festive season. The government believes the true post-reform collection trend can only be correctly assessed after December when the festive euphoria settles down.
• Anti-Fraud Measures: New GST registration and verification norms, effective from November 1 (with stricter authentication and physical verification), are expected to further help by plugging revenue leakages and curbing fake billing practices.
• Fiscal Deficit Target: Economists believe that the GST shortfall will not impact the overall fiscal math, noting the government may still be able to adhere to its fiscal deficit target of 4.4% of GDP due to higher non-tax revenues and expenditure savings.