Finance Minister Nirmala Sitharaman: GST exemplifies cooperative federalism, empowering states | BusinessNews

The Goods and Services Tax (GST) collections as a percentage of Gross Domestic Product (GDP) have reached pre-GST levels, Union Finance Minister Nirmala Sitharaman said on Monday. Underlining the milestones achieved under the GST regime, Sitharaman said it is a myth that all GST collections are “pocketed by the Centre”, adding that GST contributes significantly to state revenues.

The statement by Sitharaman came on the day of her having administered the oath to Justice (Retd) Sanjaya Kumar Mishra as the President of the GST Appellate Tribunal (GSTAT). Mishra’s appointment marks the beginning of the operationalization of the GSTAT, a crucial body for resolving GST-related disputes that has come after a long gap of nearly seven years of rollout of the indirect tax regime in July 2017.

The monthly gross GST collections have been picking up pace, recently crossing a landmark of Rs 2 lakh crore, as per the monthly data for April released on May 1 by the Finance Ministry.

“Despite the GST rate being less than the prescribed Revenue Neutral Rate and COVID-19 affecting the revenues, GST collections (as a % of GDP) have now reached the levels they were before GST (both net and gross). This demonstrates that the Center & States, collectively, through better tax administration, are able to collect the same revenue with a lower burden on our taxpayers,” Sitharaman said in a post on social media platform X, formerly Twitter.

GST “exemplifies cooperative federalism in India, empowering states”, Sitharaman said, adding that it has improved tax buoyancy for states. “It is a myth that all GST collections are pocketed by the Centre. GST contributes significantly to state revenues – States receive 100 per cent of SGST collected in that state, approx. 50 per cent of IGST (ie on inter-state trade). A significant portion of CGST, i.e., 42 per cent, is devolved to the states based on the Finance Commission’s recommendations. GST has improved tax buoyancy from 0.72 (pre-GST) to 1.22 (2018-23). Despite compensation ending, state revenues remain buoyant at 1.15,” she said.

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Without GST, states’ revenue from subsumed taxes from FY19 to FY24 would have been Rs 37.5 lakh crore. With GST, states’ actual revenue amounted to Rs 46.56 lakh crore, she said.

Stating that it is a pro-poor approach, the Finance Minister said the effective weighted average GST rate has consistently fallen since 2017. “The Revenue Neutral Rate was suggested to be 15.3 per cent but was lower at 14.4 per cent in 2017, and it has come down to 11.6 per cent in 2019,” she said.

In a post on GST levels”. He had said in the first half of FY24, pre-GST levels had been surpassed but after updating the with the estimate for FY24, it suggested it had not happened. “…the focus must be on revenues, net of refunds, not on headline collections,” he had said.

Sitharaman said as the Chairperson of the GST Council, she “ensured all states’ voices were heard equally without bias”. GST Council, with a 75 per cent majority vote requirement, assigns one-third voting power to the Center & two-thirds to states. “Out of 52 meetings, all decisions but one was reached through consensus. As Chairperson of @GST_Council, I have ensured all states’ voices are equally heard without bias,” she said.

She also said that GST has lowered taxes on many essential items compared to pre-GST rates. GST has exempted many essential items and services, such as unbranded food items, certain life-saving drugs, healthcare, education, public transport, sanitary napkins, hearing aid parts, agricultural services, etc. Common items like hair oil and soap saw a tax cut from 28 per cent to 18 per cent, while electrical appliances were taxed at 12 per cent versus 31.5 per cent before. “Movie tickets were taxed lower, too. Further tax rate rationalization has been done since 2017. National Anti-profiteering Authority ensured that companies passed the benefits to the consumers,” she said.