Context:

• After one fiscal year into the implementation of the GST, it is worth asking how it has performed in terms of revenue generation, both for the country and for individual states. And, here, the news, based on analysing nine full months of data, is encouraging. Three important and new points stand out.

1. Aggregate revenues are highly buoyant

• This year’s Economic Survey had argued that confusion reigns in understanding GST performance because of focusing on one or more of the bewildering sub-categories of the GST (CGST, SGST, IGST, cess etc)
• A revenue growth of 11.9 percent has been observed, compared with the relevant pre-GST numbers
• The implied tax buoyancy (responsiveness of tax growth to nominal GDP growth) is 1.2, which is high by the historical standards for indirect taxes

2. “True” compensation requirements are minimal

• The government produces estimates which show that compensation, although financeable from within the GST, has been substantial
• Nearly all the states have seen their revenues grow by at least 14 percent
• There will be likely improvements in compliance with the introduction of e-way bills and invoice matching
• There are very few states where there is a significant decline in the post-GST share compared to the pre-GST share

3. GST is boosting revenues of consuming states

• Evidence from the first nine months suggests this
• Many of the net consuming states, such as nearly all the North-eastern states as well as UP, Rajasthan, MP, Delhi, Kerala, and West Bengal, have indeed increased their post-GST shares
• States that have seen a small decline in their shares are states that had special tax regimes in terms of incentives or in agriculture

A full agenda for future reform

• Further simplifying the rate structure,
• widening the base to include currently exempted sectors, and
• streamlining procedures for filing and refunds.
• The GST Council will consider inclusion of hydrocarbons in the new tax regime once state revenues stabilize. Nearly 40% of state revenue is estimated to be from petroleum products.

Conclusion:

From a revenue perspective, and especially considering the headwinds, the GST has been a positive development: Overall, for the states, and especially for most of the less developed, consuming states.

How GST Affects You

Source: Indian Express & Livemint