Has the Goods and Services Tax (GST), implemented eight years ago, truly fulfilled its purpose? Simplifying the tax collection process should be the aim of any government. GST was introduced to replace multiple indirect taxes, but most states are now struggling. They allege that their revenues have declined compared to earlier years.
Although the total tax collection figures may have increased numerically, has GST grown as a percentage of GDP? The share of states, which used to be 2.8% of GDP, has now fallen to 2.5%. Moreover, the total GST collection, which was 6.5% of GDP in 2015–16, has declined to 5.5% in 2023–24.
With lower revenues, states are facing a shortage of funds for development. Every year, the growing burden of salaries, pensions, and interest on debt consumes between 65% and 85% of total revenue, while political populism during elections leads to further strain through “freebie” distributions. Himachal Pradesh, Punjab, and Kerala spend 83%, 74%, and 69% of their revenues, respectively, on such non-developmental heads. In contrast, Jharkhand, Meghalaya, and Chhattisgarh spend 29%, 39%, and 40% respectively.
Apart from these issues, the recent reduction in GST rates may also affect revenue. While it is too early to assess the full impact, it would not be wrong to expect a decline over the next year. The pressing question remains — is the GST collection process itself becoming a victim of corruption?
