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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