GST Revenues Still Trail Pre-GST Levels: PRS Report

Issue: To analyze the Goods and Services Tax (GST) revenue collections over the seven years since its implementation, comparing the current revenue realization as a percentage of GDP to the collection levels of the various indirect taxes it replaced.

Facts:

• The GST replaced several central and state indirect taxes, such as VAT, Central Sales Tax, Excise Duty, and Entry Tax.
• In the period before GST (2015-16), the aggregate revenue from these subsumed taxes stood at 6.5% of GDP.
• The 15th Finance Commission had projected a GST-to-GDP ratio of 7% for the medium term.

Decision:

A report by PRS Legislative Research concluded that eight years after the GST rollout, the aggregate revenue collected from the unified indirect tax system continues to lag behind the levels of taxes it replaced.

Key TakeDowns:

• Aggregate Revenue Decline: Aggregate GST revenue (Central + State) has declined from 6.5% of GDP in 2015-16 (pre-GST) to 5.5% of GDP in 2023-24.
• State Revenue Performance: For states, the share of subsumed taxes averaged 2.8% of GDP in the four years before GST. This average collection rate (SGST as a percentage of GDP) over seven years of GST has been 2.6%, which is still below the pre-GST average.
• State-Wise Variation: The report highlights significant state-wise variations. Some North-Eastern states have seen an improved tax-to-GSDP ratio post-GST, while fiscally strong states like Punjab, Chhattisgarh, Karnataka, Madhya Pradesh, and Odisha have witnessed a sharper fall in revenues compared to the pre-GST period.
• Rationale for GST 2.0: The 15th Finance Commission had previously recommended simplifying the GST rate structure to help achieve the 7% medium-term revenue target, which led to the recent GST 2.0 reforms (reducing slabs to 5%, 18%, and 40%). The government hopes the impact of the recent reforms to be offset by higher consumption and compliance under the simplified framework.