06 May Broaden GST Net, Cut Cesses: Boosting Revenue and Reducing Tax Burden
Introduction
India’s goods and services tax (GST) collection soared to a historic high, surpassing Rs 2.1 lakh crore in April. While this achievement is commendable, there are essential aspects to consider beyond the headline numbers.
Record GST Collection in April
April typically witnesses higher collections due to year-end adjustments in tax assessments. However, what sets apart the recent surge is the substantial increase of 12.4 percent compared to the previous year. This growth was primarily driven by robust domestic sales, particularly in premium sectors such as automobiles, consumer durables, and hospitality services.
Factors Driving April’s GST Collection
- Year-End Adjustments: Year-end adjustments in tax assessments contributed to the significant increase in April's GST collection.
- Growth in Domestic Sales: Healthy growth in domestic sales, especially in premium sectors, played a pivotal role in boosting GST revenues.
- Impact of Decisive Actions: Decisive actions against fraudulent registrations, fake invoicing, and stricter compliance norms helped shore up revenues.
Outlook for Future Collections
While the April collection is promising, it’s anticipated that the average monthly collection may decrease in the coming months. However, sustained double-digit growth could surpass the budget targets for 2024-25, similar to the achievements in previous fiscal years.
Concerns Over GST-GDP Ratio
Despite the remarkable collection figures, one critical metric—the GST-GDP ratio—indicates room for improvement. While it rose from 5.7 percent in 2020-21 to 7 percent in 2023-24, there’s still significant potential for growth.
Simplifying the Tax Structure
Efforts to rationalize the GST rate structure and extend product coverage are imperative to enhance the GST-GDP ratio. However, concerns regarding the potential impact on household budgets and inflation must be addressed.
Improving Tax Administration
Enhanced tax administration and expedited dispute resolution mechanisms are essential to ensure smooth GST implementation.
Avoiding New Cesses
Authorities should refrain from imposing new cesses, which could escalate the tax burden and reduce state revenues.
Bringing More Products Under GST
Expanding the GST ambit to include products like petroleum, electricity, and alcohol could help lower the overall tax burden and streamline the tax regime.
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