13.04.2023: Centre gets post-GST tax buoyancy boost but states yet to improve: NIPFP

The tax buoyancy in the goods and services tax (GST) regime has improved for the Union government but same has not improved for states yet, a working paper by the National Institute of Public Finance and Policy (NIPFP) has said.

“GST-to-GDP ratio of the Union as well as state governments not yet improved during post-GST period as compared to the equivalent share of respective revenue streams in GDP during the pre-GST period,” Sacchidananda Mukherjee, a professor at the autonomous research institute under the ministry of finance, wrote in the working paper released on April 11.

The paper comes to these conclusions by comparing comparable revenue streams of pre- and post-GST periods for the period 2012-13 to 2022-23.

Sustaining revenue streams of the Union and state governments, in terms of percentage share in the nominal gross domestic product, between the pre- and a post-GST period is important for sustainable public finance management, the professor said.

At the time of the introduction of GST in July 2017, the constitutional amendment provided for compensation to states for five years for the revenue lost. The GST Compensation to States Act provided for the release of compensation based on 14 percent year-on-year growth. This compensation came to an end in June last year.

After nose-diving during the coronavirus pandemic, GST collections have been robust for several months now. The monthly GST collection jumped 13 percent on-year to Rs 1.60 lakh crore in March, the second-highest monthly mop-up since the rollout of the indirect tax regime.

While there has been a marginal improvement in the GST collection after the coronavirus pandemic, volatility in tax buoyancy during the post-GST period is attributed to the volatility in growth rate and the resulting volatility in GST collections.

“Volatility in tax buoyancy makes it difficult to make a reliable projection of tax revenue and therefore it may result in revenue shocks to public finance management,” the working paper said.

The post-pandemic rise in GST collections is also the result of rising consumer prices of goods and services and an increase in compliance in filing of returns, it added.
Source: MoneyControl 

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