Are India's GST Collections Rising Too Fast?

The Goods and Services Tax (GST) system came into force on July 1, 2017. The four-slab tax regime is widely recognized as one of the biggest economic reforms of Independent India, simplifying and clarifying the indirect tax system without compromising the overall tax collections of the government.

However, the GST system is not perfect, and the government acknowledges that further changes are needed to achieve the ‘good and simple tax’ regime it was intended to be. For one, the number of tax slabs needs to be reduced from the current four.
 

Second, while the growth in tax collections has been robust, the nature of GST means some states do not benefit as much as others. This is because GST is a consumption-based tax. Consequently, mineral-rich states like Chhattisgarh, which do not have a large consumption base, have complained about losing out on revenues.
 

Growth in GST Collections

What can surely be said about the GST is that tax collections, on the whole, have risen fairly robustly since its introduction seven years ago.
 

In 2017-18, monthly collections averaged Rs 89,885 crore. This rose 9 percent to Rs 98,114 crore in 2018-19 and a further 4 percent to Rs 1.02 lakh crore in 2019-20.
 

Then the coronavirus pandemic struck, resulting in a 7 percent year-on-year drop in monthly collections to Rs 94,734 crore in 2020-21. However, since then, average monthly GST collections have gone from strength to strength: Rs 1.24 lakh crore in 2021-22 (up 30 percent), Rs 1.51 lakh crore in 2022-23 (up 22 percent), and Rs 1.68 lakh crore in 2023-24 (up 12 percent).
 

In the first three months of 2024-25, monthly GST collections averaged Rs 1.86 lakh crore, 10 percent higher than the figure for 2023-24. This is broadly in line with what was estimated by the full Budget presented by the Indian government on July 23, 2024.
 

No More Monthly GST Data?
 

So far, the Indian government has been releasing GST data for the previous month on the first day of the subsequent month. For example, on June 1, 2024, the GST collection data for May was released. However, it seems that the government may stop releasing the monthly numbers.

The monthly data for June 2024 was not released on July 1, 2024, as had been the practice for seven years. However, nearly all media organizations reported, quoting unnamed sources, that the figure stood at Rs 1.74 lakh crore for the third month of 2024-25. These reports also indicated that the Ministry of Finance might discontinue the practice altogether going forward. According to some media reports, the format of the GST data publication – which presents gross collections without accounting for tax refunds – was causing concerns among the public and some state governments as it showed very high tax collection figures.
 

For April 2024, total GST collections rose to an all-time high of Rs 2.11 lakh crore. This matches the entire dividend transferred by the Reserve Bank of India to the Indian government for the financial year 2023-24.
 

Are GST Collections Really Very High?

There is no doubt that the GST collected every month has risen at a brisk pace, suggesting that economic activity and domestic consumption are growing strongly. However, there are a couple of caveats worth noting.
 

Firstly, the total GST collection figures released by the Ministry of Finance do not account for sums that are refunded. Therefore, the final figures could be significantly different. For instance, while the total GST collections in 2023-24 as per the headline figures was a huge Rs 20.18 lakh crore – resulting in an average monthly number of Rs 1.68 lakh crore – what really accrued to the central government was less than half of that, at Rs 9.57 lakh crore, after considering refunds and state revenues.
 

Secondly, rapid growth in GST collections can also reflect the level of inflation. Since GST is levied on the prices of goods and services, if prices are rising quickly, then the tax in rupees on goods and services will also rise.
 

The Way Forward

The GST numbers released at the beginning of every month are a useful data point to gauge the level of economic activity in the country. However, even if these numbers are not made available in the future, it should not be a significant problem. Similar numbers are released by the government.

For example, at the end of every month, the Controller General of Accounts (CGA) releases data relating to the central government’s accounts for the previous month. This includes income and expenditure items, including various sub-heads of tax revenues: corporate tax, personal income tax, Central GST, GST compensation cess, customs collections, and excise duty collections. These are final numbers – subject to some minor revisions at the end of every financial year – and are more comprehensive than the monthly GST data provided so far. This is because they give the tax collections that the central government finally receives after accounting for refunds and state allocations. While this number may come with a one-month lag, it provides a full picture of the government’s income.