 "Bibek Debroy")
The Goods and Services Tax regime has altered the contours of fiscal federalism in India, and steady growth of GST revenue is a robust barometer of the reform's success, Economic Advisory Council to the PM (EAC-PM) chairman Bibek Debroy said.
In a working paper titled 'How the Pennies Drop: What GST revenue data tells us and What it doesn't', Debroy also proposed constructing a GST Rate Index to help track relative movements of the tax rates and get a sense of how it impacts tax collections and taxpayer behaviour.
"The introduction of a Goods and Services Tax (GST) in India in 2017 not only impacted the economy but it also altered the contours of fiscal federalism in India.
"Amongst others, the steady growth of GST revenue has been a robust barometer of the success of the reform," he said.
Debroy also suggested a novel mechanism for computing the collection rate of GST, using only publicly available data, saying this has potential applications in revenue modelling; analysis of trends across time and geographies and for policy formulation.
" We propose to construct a GST Rate Index. The rate index is intended as an indicator of the effective rate and is computed using GST rates data readily available in the public domain," he said.
With the introduction of GST, the Centre and states pooled their sovereignty in matters related to the administration of the new tax, especially in areas like policy making, fixation of rates, drafting of laws/rules etc, Debroy said.
"This is at times cited as a restriction on the powers of the states," he said, adding that it is equally a "restriction" for the central government.
Noting that the effects of GST have been measured on a number of metrics logistics efficiencies, enhancing trade between states easing compliance by introducing uniform processes and procedures, Debroy said perhaps the biggest indicator of the efficiency and efficacy of a tax reform has to be the revenue it yields.
According to Debroy, 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 and integrated GST (IGST) paid on imports is included with the trend, particularly sharp from 2020-21 onwards, he said.
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.
Debroy pointed out that while the velocity of tax collections has reduced post-introduction of GST, the buoyancy of collections has been distinctly higher in the GST regime despite a steady reduction in the tax rates.
Referring to the enhanced formalisation of the economy under the GST regime, Debroy said the total number of registered GST assesses in June 2023 was 218 per cent more at 1,40,91,249 against 44,35,653 in 2017.
Pointing out that rates of indirect taxes in India are among the lowest internationally, he said out of 37 OECD members, only four have average tax rates lower than that of India.
