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Thursday, July 25, 2024, 3:26 am

Thursday, July 25, 2024, 3:26 am

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Increased GST revenues provide an opportunity to focus its reform.

GST
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The fiscal year 2023-24 finished with strong revenue growth. By mid-March, net direct tax collections increased by 19.9%, meeting 97% of the revised Budget projections. The Goods and Services Tax (GST) generated a significant ₹20.18 lakh crore. In March, gross GST receipts for February transactions reached ₹1.78 lakh crore, marking the second highest total since the indirect tax was implemented six and a half years ago. April 2023 was the only month with increased collection due to year-end compliances. Compliance is expected to exceed ₹2 lakh crore this month, setting a new record. In 2023-24, average monthly receipts grew by 11.6% to above ₹1.68 lakh crore. Although the growth rate is lower than the previous year’s 21.8%, it creates a new revenue normal that may be built upon in the future year. This should allay the Centre’s fears that the GST has not produced the intended results. Central GST receipts in 2023-24 exceeded the interim Budget’s predictions. The Finance Ministry may need to alter its 2024-25 objectives, as they may now be met even with growth below 10%.

Increased revenues may be attributed to prior tax demands and efforts to combat evasion, including phoney invoices and bogus input tax credits. The government has reported an increase in net GST revenues and gross collections from domestic transactions (17.6% vs. 13.6% in February) in Q4 2023-24, indicating increased economic activity. The main concern is a 5% decrease in GST on goods imports in March, compared to an 8.5% increase in February. This may indicate a reduction in discretionary expenditure. The GST trend suggests that the future administration may focus on necessary tax changes. To rationalise rates, the plan should be retrieved from deep freeze, expanded to cover excluded commodities like energy and petroleum, and taxes on vital products like cement and insurance reduced. The GST Compensation Cess, designed to repay COVID-19 pandemic-era borrowings for States, generated ₹1.44 lakh crore last year. It may be phased down before the extended March 2026 deadline. It’s important to avoid replacing it with a new fee, save for extremely harmful commodities like tobacco. Taxing hybrid vehicles beyond 40% makes no sense for India’s green ambitions or to increase demand and private investment.

 

ABHISHEK VERMA


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