GST led to revenue growth, formalisation of economy: EAC-PM

The Goods and Services Tax (GST) regime, introduced in 2017, has delivered on multiple fronts, including revenue growth, formalization of the economy, reduced rates of taxation and a more unified market with significant improvement in tax buoyancy and collection efficiencies, Bibek Debroy, chairman of the Economic Advisory Council to PM (EAC-PM), said.

“In the six years since its launch, GST revenue collections have gone from strength to strength. This is true for both collections on domestic supplies as well as when integrated GST (IGST) paid on imports is included with the trend particularly sharp from 2020-21 onwards,” Debroy said in his working paper co-authored by Devi Prasad Misra, director, EAC-PM.

Domestic revenue collection under GST went up from Rs 8.77 crore in 2018-19 to Rs 12.94 crore in 2022-23 while the IGST went up from Rs 11.77 crore in 2018-19 to Rs 18.1 crore in 2022-23.



Proposes GST Rate Index
In his working paper, co-authored by Devi Prasad Misra, director, EAC-PM, Debroy has proposed constructing a GST Rate Index which would help to track relative movements of the tax rates and to get a sense of how it impacts tax collections and taxpayer behaviour.

“ Further, a novel mechanism for computing the collection rate of GST using only publically available data is proposed to help in revenue modeling, analysis of trends across time and geographies and for policy formulation.” he said.

Buoyancy in Collection
According to Debroy, while the velocity of tax collections has reduced post introduction of GST, the buoyancy of collections have been distinctly higher in the GST regime despite a steady reduction in the tax rates.

At the time of introduction of GST, the effective weighted average GST rate stood at 14.4% which was steadily reduced to 11.6% in September 2019. “In revenue terms, this can be quantified as being a saving for the economy in excess of Rs 4.3 lakh crore in just the last year,” Dbroy said.

“This is indicative of both structural as well as administrative efficiencies especially in widening the tax base, removing distortions and improving compliances,” he added.

Formalisation of economy
Talking about enhanced formalisation of the economy under the GST regime, Debroy said the total number of registered GST assesses in June 2023 were 218% more at 1,40,91,249 as against 44,35,653 in 2017.

Besides, the total number of active companies registered went up 23% from 11,67,858, companies with authorized capital of Rs 60,92,404 crore in March, 2018 to 14,38,045 with an authorized capital of Rs 89,18,020 crore.

“From the above it is evident that the number of new entrants into the GST chain is far greater than the number of new entities formed. Taken together, this is perhaps an indicator of the enhanced formalization of the economy,” he concluded.

Tax evasion
According to Debroy, while the total number of tax evasion cases detected has shown a steady growth, however, taken as a ratio of the amount of revenue collected, the figures show a declining trend from 2020-21 onwards.

“This is perhaps an indicator of better targeted and thereby more productive interventions,” he concluded.