GST Collections Steady as Consumer Demand Surges

In November 2023, India witnessed gross Goods and Services Tax (GST) collections remaining steady at Rs 1.70 lakh crore, a slight increase from Rs 1.69 lakh crore recorded last year. This stability follows significant GST rate cuts for over 375 items under the new GST 2.0 framework that took effect on September 22. Including the compensation cess, gross collections were down 4% at Rs 1.75 lakh crore in November.

After accounting for refunds and excluding cess, GST collections stood at Rs 1.52 lakh crore in November, marking a 1.3% increase from last year. Net GST mop-up, including cess, reached Rs 1.56 lakh crore, down 4.2% from the previous year. Government officials expressed optimism over the rise in taxable value of supplies, which grew by 15% during September-October compared to an 8.6% growth in the same period last year. This surge indicates a strong uplift in consumption, driven by lower rates and improved compliance.

Experts like MS Mani from Deloitte India noted that while GST collections were expected to slow down due to the steep rate cuts, an increase in consumption was anticipated. The steady gross GST collections suggest that the loss from rate reductions has been compensated by higher consumption, though not to the expected degree. Future GST data will be crucial in determining if fiscal targets for FY26 can be achieved.

Pratik Jain from Price Waterhouse & Co LLP pointed out that November's collection was marginally higher than last year, reflecting the full impact of October's GST 2.0 rate cuts. Officials highlighted strong tax collection in sectors that benefited from rate rationalization, such as fast-moving consumer goods (FMCG), pharmaceuticals, food products, and automobiles.

Sector-wise analytics revealed significant growth in taxable value of supplies. For instance, the cement, glass, ceramic, and stone products sectors experienced a 19% year-on-year increase in September-October. Similarly, two-wheelers and bicycles saw an 18% growth, indicating a potential consumer shift toward more affordable options. The taxable value for buses and passenger cars rose by 20% compared to last year's 12% growth.

Post-September 22, as part of GST 2.0, the tax structure was streamlined to just two slabs of 5% and 18%, along with a special 40% rate for luxury items. This change shifted many items from the 28% slab, impacting overall revenue. The government also introduced legislative measures to increase excise duties on tobacco, indicating a strategic shift in revenue generation.

With the flat GST collections amidst significant rate cuts, the coming months will be critical in assessing if these measures can sustain India's economic growth and meet fiscal commitments.