GST Revenue Surprises Even After Rate Cuts

The Next-gen GST reforms, also called GST 2.0, were introduced in India with key changes, including a simplified two-tier tax structure of 5% and 18%. The rationalisation of GST was aimed at lowering the prices and providing relief to the citizens, apart from easing compliance for MSMEs, and strengthening key sectors like healthcare and agriculture. Effective from September 22, the tax on many goods and services has been reduced to promote affordability and consumption, to create a sustainable and competitive business environment.

When the GST reforms were rolled out, there was widespread speculation that the GST revenue would dip, at least during the initial few months, given the rationalization that led to slashing of the rates.

However, in contrast, the GST revenues remained robust, demonstrating that the reforms led to a change in the consumption. The Central government introduced the reforms to reduce the prices, which it expected, would eventually increase the consumer base. But, the government said it would lose Rs 2 lakh crore per annum due to the GST reduction.

Going against the speculation, the GST revenue collection displayed a gradual increase. In August, the GST collection stood at Rs 1.72 lakh crore, in September, Rs 1.89 lakh crore and in October Rs 1.96 lakh crore, which reflect a healthy spending environment.

This trend is being explained due to the rate cuts on a wide range of essential and consumer goods like electronics, household staples and automobiles. At the same time, a few consumers who temporarily hesitated to purchase goods anticipating a rate cut, also took the plunge and bought the goods, after the announcement of the GST 2.0, leading to increased economic activity, during the festive season.

It is being said that the collections would remain high during the festival season. The real figures would be out once the euphoria of festivals settles down, economic experts said.