Indian states must boost growth to achieve tax buoyancy and state-level reforms could be a sure-shot way of doing just that
One of the most significant economic reforms undertaken since Indian Independence was the 2017 implementation of the goods and service tax (GST), which subsumed state and central indirect taxes to create a simpler national tax. The move was an attempt at economic integration of the country by removing different taxation regimes, easing the mobility of goods and services, and removing state-level entry barriers with an aim to improve trade as well as aid the overall economy. Indeed, since the introduction of the GST, there has been an increase in indirect tax collections and also a sustained improvement in compliance. It is important to view GST revenues as an outcome of both compliance and growth. The average tax rate is also an important determinant. The key point is that since GST’s launch, there has been an attempt by the GST Council to rationalize rates, and the outcome of this has been a reduction in the effective weighted average GST rate from 14.4% in 2017 to 11.6%.