India’s goods and services tax collections have shown resilience to past rate cuts, with government revenues rebounding after short-lived dips, a Moneycontrol analysis shows.
The GST-to-GDP ratio slipped to 6.1 percent in FY20, after back-to-back rate cuts in October 2018 and July 2019 cut the average effective rate to 11.6 percent from 14.4 percent when GST was rolled out in 2017. The decline worsened during the pandemic, hitting 5.7 percent in FY21. Since then, buoyant growth and tighter compliance have shored up collections, with the ratio recovering to 6.3 percent of GDP in FY22 and climbing to 6.7 percent from FY23-FY25.
GST-GDP ratio has jumped post pandemic
(in Rs crore)
| Table with 4 columns and 7 rows. (column headers with buttons are sortable) | ||||
| GST | GDP | GST to GDP ratio | ||
| FY19 | 1,177,369 | 18,899,668 | 6.2
6.2 6.2 |
|
| FY20 | 1,222,118 | 20,103,593 | 6.1
6.1 6.1 |
|
| FY21 | 1,136,800 | 19,854,096 | 5.7
5.7 5.7 |
|
| FY22 | 1,488,227 | 23,597,399 | 6.3
6.3 6.3 |
|
| FY23 | 1,807,680 | 26,890,473 | 6.7
6.7 6.7 |
|
| FY24 | 2,018,249 | 30,122,956 | 6.7
6.7 6.7 |
|
| FY25 | 2,208,861 | 33,068,145 | 6.7
6.7 6.7 |
|
Source: MoSPI, GSTN Created with Data wrapper
Economists suggest the latest round of reforms will likely follow a similar pattern. “The evidence points to a temporary adjustment phase followed by stronger inflows. While an immediate reduction in rates can cause a short-term dip of around 3-4 percent month-on-month (roughly Rs 5,000 crore, or an annualised Rs 60,000 crore), revenues typically rebound with sustained growth of 5-6 percent per month,” SBI Research noted in a report earlier this month.
The GST Council on September 4 approved a major rationalisation, collapsing the 12 percent and 28 percent slabs into a simplified two-rate structure of 5 percent and 18 percent. More than 90 percent of items have been shifted to the lower bracket. From September 22, the effective GST rate will fall to 9.5 percent.
The government has already factored in a revenue loss of Rs 48,000 crore for the Centre, against collections of ₹10.6 lakh crore in FY25. Economists, however, see medium-term positives.
“Differentiated taxes between lower- and higher-value items within a category can help mitigate the fiscal impact. For instance, the rate was hiked for higher-value clothing and two-wheelers even as taxes on lower-value items were cut. Premium demand from upper-income segments could remain intact, supporting revenue. Also, GST simplification from four to two slabs can bring more goods and services under the formal net, which could gradually support tax buoyancy,” Crisil said in a report on September 18.
