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Home / Economy / Why we must look past the   1-trillion  GST milestone

Gross revenues from the goods and services tax (GST) stood at 1.30 trillion in October. This was the fourth straight month when collections from this levy on the consumption of goods and services exceeded 1 trillion—a mark that has inadvertently become the benchmark for GST collections and has stuck for over four years now. The economy is said to be doing well when collections exceed 1 trillion and not so well when it doesn’t. There’s good reason to raise this bar.

This bar entered the frame in April 2018, when monthly GST collections first crossed 1 trillion. This came 10 months after India subsumed a plethora of taxes at the central and state levels and launched GST, a uniform tax for the entire country. Former finance minister Arun Jaitley, who presided over this transition, called the maiden 1 trillion mark a “landmark achievement". That notion of achievement rested not on an economic calculation or paradigm, but on a round number. And it has stuck as a headline number.

This needs to be revisited. Between the March-ended quarter of 2018 and the March-ended quarter of 2021, the quarterly gross domestic product (GDP) in nominal terms has increased 24%. It’s somewhat expected, and obvious, that GST collections should grow in tandem with the GDP—which has happened, especially post-pandemic. Having an April 2018 base as a marker for the GST, and the economy, is both outdated and a low bar. That 1 trillion marker should be at least 24% higher now and expand progressively with the nominal GDP.

Breaching 1 trillion

Data on monthly GST collections confirms the receding relevance of the 1 trillion figure in assessing the state of the economy. In the 51 months since July 2017, monthly collections have exceeded 1 trillion 22 times. In 2018-19, when GST collections first exceeded 1 trillion in the first month, they did so again only thrice. Teething troubles such as implementation issues, tax avoidance and multiple revisions of tax slabs meant that GST collections never really took off.

Just as there were signs of momentum in early 2020, the covid-19 pandemic dealt a blow to economic activities, and consequently, revenues generated. However, in the past 12 months, GST collections have breached the 1 trillion mark for all months except June 2021, whose billing month (May 2021) coincided with the peak of the second wave. That again makes the case for a reset.

On the Move

The government said in September that economic growth and anti-evasion activities had boosted GST collections in recent months. Another yardstick to track this is the number of e-way bills issued to transporters moving goods within a state or outside. Here, too, there’s been unmistakable growth, rendering the 1-trillion mark for GST collections unhelpful: the number of e-way bills has largely shown a rising trend, barring the sharp dips during lockdowns induced by covid-19.

In April 2018, the first month of 1 trillion GST collections, 28 million e-way bills were issued. For the last 12 months, the monthly average of e-way bills is around 62 million. The economy is expanding in size in nominal terms. As is the formal economy, which should only boost GST collections further, beyond the 1 trillion bar. A recent report by SBI Research estimates the informal economy has shrunk from 52% of GDP in 2017-18 to 15-20% now.

Tax Buoyancy

A tax is considered ‘buoyant’ if revenues from it increase in a greater proportion than a rise in GDP. Thus, a tax buoyancy greater than 1 indicates a tax is responsive to economic growth, and therefore revenues can increase without an increase in tax rates. An analysis for 12 quarters since June 2018 shows that GST collections and GDP have mostly moved in tandem, but there is a mixed experience with respect to buoyancy. In six quarters, buoyancy has topped 1, including in three successive quarters since June 2020.

Part of this comes from the effect of staggered tax filings due to the pandemic. Still, what is irrefutable is that the size of the economy in 2021 in nominal terms is larger than in 2018. That, along with other gains made by GST, make a case for raising the 1 trillion bar to assess the state of the economy.

(www.howindialives.com is a database and search engine for public data)

 

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