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Editorial of the Day (3rd Apr): GST-A Reform Window

Context: Net direct tax collections rose by 19.9% by mid-March, reaching 97% of revised budget targets.

Robust GST Performance

  • Goods and Services Tax (GST) collection reached ₹20.18 lakh crore, a significant achievement.
  • Gross GST revenue in March (transactions from February) crossed ₹1.78 lakh crore, the second-highest ever (except for April 2023 with year-end compliances).
  • Average monthly collections grew 11.6% in FY24 to over ₹1.68 lakh crore, establishing a new revenue baseline.
  • Central GST collections surpassed revised budget estimates, potentially leading to higher targets in the upcoming budget (FY25).

Possible Reasons for Growth

  • Increased tax demands for past years.
  • Crackdown on tax evasion practices like fake invoices and fraudulent credits.
  • The uptick in net GST revenue and domestic transactions (17.6% growth) suggests increased economic activity in the last quarter of FY24.

Areas for Improvement:

  • A 5% decline in GST on imported goods during March might indicate a decrease in discretionary spending.

Recommendations for GST Reform

  • Rationalise the complex structure with multiple tax rates.
  • Expand GST to include currently exempted items like electricity and petroleum products.
  • Reduce high levies on essential products like cement and insurance.

GST Compensation Cess

  • This cess collected ₹1.44 lakh crore in FY24, used to repay pandemic-era borrowings for state compensation.
  • Potential for an earlier wind down than the extended deadline of March 2026.
  • Resistance is needed against replacing it with new levies, except for demerit goods like tobacco.
  • A high GST rate (over 40%) on hybrid vehicles discourages green goals and consumer spending.

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