Lessons of five years of the GST call for the Centre, States to walk an extra mile for optimum revenue
June 30 marked the fifth anniversary of the goods and services tax launched by the NDA-II government on July 1, 2017. The new tax law was introduced with an objective to fetch all indirect taxes on goods and services under the ambit of one tax. Though a few items like diesel, petrol and liquor are not included in GST, there is demand in the industry for bringing petroleum products under its net. But the government has some apprehension, because taxes on fuel contribute most of the revenue of the
governments at the Centre and states. The government earned Rs 3.92 lakh crore in FY21, Rs 3.91 lakh crore in FY22 and Rs 0.31 lakh crore in the first two months of FY23 from excise duty.
Revenue realisation is an important parameter for the analysis of the success of GST. There was an unofficial target of Rs 1 lakh crore per month for revenue generation through new tax law. But in the first year, second year and fourth financial year of GST implementation, the actual revenue was far behind the unofficial target. However, the gross GST revenue has exceeded the unofficial target of Rs 1 lakh crore since second quarter of FY21 except for the month of June of FY22.
The actual average per month realisation was Rs 0.90 lakh crore in FY18, Rs 0.98 lakh crore in FY19 and Rs 0.95 lakh crore in FY21. The main reason for the fall of revenue in FY21 was Covid-19 pandemic. The gross GST collection during the fiscal was Rs 1.02 lakh crore. The growth in gross GST collection got momentum in the FY22. In this financial year, the government realised the highest ever gross GST of Rs 14.87 lakh crore with an average of Rs 1.24 lakh crore per month. The same tempo continued in the current financial year too. In the first quarter of FY23, the government collected total GST revenue of Rs 4.53 lakh crore with an average of Rs 1.51 lakh crore.
One of the objectives of the introduction of GST was to expend revenue of the government. It was expected that the GST revenue would increase with a higher rate. The average growth of indirect taxes (union excise duty and service tax) of the last five years in pre-GST regime or during FY13-FY17 was 21.98 percent. As well the average growth in indirect taxes in the last 10 years that is during FY13-FY22 has been 16.79 percent.
However, total GST revenue collection of the central government was Rs 28.70 lakh crore — 99.27 percent of the revised target of Rs 28.91 lakh crore during FY18-FY22. The average growth in GST revenue during the same period was 13.3 percent. Thus, the growth rate in GST revenue in the last five years is 3.5 percent less than the last 10 years growth rate and 8.7 percent lesser than pre-GST last five years average growth rate.
Further, if we club union excise duty and service tax revenue of the same period with GST from FY18 to FY22, the growth rate of indirect taxes in post GST era has been 11.6 percent. It is also 5.2 percent lower as compared to last 10 years growth rate of indirect taxes and 10.4 percent lesser than pre-GST last five years average growth rate.
The statistics of the performance of GST in terms of revenue is not satisfactory. Anyway, in terms of indirect tax revenue to GDP, the situation is different. Indirect tax revenue to GDP jumped to 7.40 percent of real GDP in FY22 (post-GST year) from 5.12 percent of real GDP in financial year 2016-17
(pre-GST year).
It depicts that there is no significant impact of GST on indirect tax revenue of the government. According to the working paper (385) of NIPFP, the government could not reap the benefits of GST.
The challenge of GST revenue can be addressed through rate rationalisation. At present we have a zero rate, a low rate of 5 percent on essential items and a higher rate of 28 percent on luxury items
together with 12 percent and 18 percent along with a three per cent on precious metals and a 0.25 per cent on precious stones and diamonds. Moreover, a cess is also levied over the peak rate of 28 per cent on demerit goods.
The rate should be reduced to three rates, as had been the case in 2002 with CENVAT, a merit rate of 8 per cent and demerit rate of 24 per cent and a mean rate of 16 per cent, besides service tax that segregated into five slabs under GST.
(The author is Associate Professor, Institute of Technology & Science, Ghaziabad)