The gross revenues from the goods and services tax (GST) amount to ??1.30 trillion in October. This is the fourth consecutive month in which the collections of this levy on the consumption of goods and services have exceeded ??$ 1,000 billion – a mark that has inadvertently become the gold standard for GST collections and has been stuck for over four years now. The economy is said to be doing well when collections exceed ??1 trillion and not so good when it isn’t. There are good reasons to raise this bar.
This bar entered the framework in April 2018, when monthly GST collections first crossed ??$ 1 trillion. It came 10 months after India absorbed a plethora of taxes at the central and state levels and introduced the GST, a uniform tax for the entire country. Former Finance Minister Arun Jaitley, who chaired this transition, called the girl ??$ 1 trillion a “landmark achievement”. This notion of success was not based on a calculation or an economic paradigm, but on a round number. And it stuck as a front page number.
This needs to be reviewed. Between the quarter ended March 2018 and the quarter ended March 2021, quarterly gross domestic product (GDP) in nominal terms increased by 24%. It is somewhat expected, and evident, that GST collections will increase in line with GDP, which has happened, particularly after the pandemic. Having an April 2018 base as a marker for the GST and the economy is both outdated and a low bar. This ??The trillion mark is expected to be at least 24% higher now and gradually increase with nominal GDP.
Violation ??$ 1 trillion
Data on monthly GST collections confirm the decline in the relevance of the ??$ 1,000 billion to assess the state of the economy. In the 51 months since July 2017, monthly collections have exceeded ??1,000 billion 22 times. In 2018-19, when GST collections first exceeded ??$ 1 trillion in the first month, they only did it three times. Start-up issues such as implementation issues, tax avoidance, and multiple tax bracket revisions meant that GST collection never really took off.
Just as there were signs of momentum in early 2020, the covid-19 pandemic has taken a toll on economic activities and, as a result, the income generated. However, in the past 12 months, the collection of the GST has violated the ??1,000 billion mark for all months except June 2021, whose billing month (May 2021) coincided with the peak of the second wave. This again warrants a reset.
The government said in September that economic growth and anti-evasion activity had boosted GST collections in recent months. Another criterion to track this is the number of electronic waybills issued to carriers transporting goods within or outside a state. Here, too, there has been unmistakable growth, making the ??$ 1,000 billion for unnecessary GST collections: The number of electronic waybills has largely shown an upward trend, with the exception of sharp declines during lockdowns induced by covid-19.
In April 2018, the first month of ??1000 billion GST collections, 28 million electronic waybills were issued. Over the past 12 months, the monthly average of electronic invoices is around 62 million. The economy is expanding in nominal terms. As well as the formal economy, which should only further increase the collection of the GST, beyond the ??1 trillion bars. A recent report by SBI Research estimates that the informal economy has grown from 52% of GDP in 2017-18 to 15-20% now.
A tax is considered “dynamic” if its revenues increase in a proportion greater than that of the GDP. Thus, a tax strength greater than 1 indicates that a tax is sensitive to economic growth, and therefore income can increase without increasing tax rates. A 12-quarter analysis since June 2018 shows that GST collections and GDP have mostly moved in tandem, but experience is mixed when it comes to buoyancy. In six quarters, buoyancy has exceeded 1, including in three consecutive quarters since June 2020.
Part of this is due to the effect of staggered tax returns due to the pandemic. What is irrefutable, however, is that the size of the economy in 2021 in nominal terms is larger than in 2018. This, along with other gains made by the GST, argues for an increase in the GST. the ??1 trillion bars to assess the state of the economy.
(www.howindialives.com is a public data database and search engine)
Never miss a story! Stay connected and informed with Mint. Download our app now !!