The recent surge in the gross collections of Goods and Services Tax (GST) has captured attention. As of March 2022, for sales in February, GST collections rose to Rs 1.42 lakh crore. This is a significant increase of 14.7% from March 2021 and a sizable 45.6% spike from March 2020.
GST Boom: Factors Driving the Rise
The sharp surge in GST collections can be attributed to a variety of factors. Predominantly, the boost comes from anti-evasion measures, particularly those taken against fake billing. The aggressive strategies implemented to curtail tax evasion have visibly contributed to the GST collections.
Another notable reason is the rate rationalization measures undertaken by the GST Council to correct the so-called ‘inverted duty structure.’ This tax anomaly occurs when the GST on inputs surpasses the tax rate on output supplies or finished goods. By addressing this imbalance, the GST Council has effectively stimulated the rise in GST collections.
Lastly, the recovery of the economy and increased domestic consumption have significantly bolstered the collections. For instance, the number of e-way bills generated in February was 6.91 crore. This figure, higher than the 6.88 crore seen a month ago, despite February’s shorter length, signals a brisk recovery in business activity.
Understanding the Goods and Services Tax
Introduced through the 101st Constitution Amendment Act of 2016, GST represents one of the country’s largest indirect tax reforms. Manifested under the slogan of ‘One Nation One Tax,’ the GST subsumed several indirect taxes, including excise duty, Value Added Tax (VAT), service tax, and luxury tax.
At its core, the GST is a consumption tax levied at the final consumption point. Its implementation has effectively mitigated numerous tax-related issues, including double taxation, cascading effect of taxes, multiplicity of taxes, and classification issues. This has further led to the emergence of a common national market.
Operational Mechanism of GST
Merchants can offset the GST paid to procure goods or services (i.e., on inputs) against the tax applicable on the supply of final goods and services. This set-off tax is referred to as an input tax credit. By structuring the tax in this manner, the GST prevents the cascading effect or ‘tax on tax,’ which heightens the tax burden on the end consumer.
Tax Structure under GST
GST encompasses three types of taxes: Central GST, which replaces Excise duty and Service tax; State GST, replacing VAT and luxury tax; and Integrated GST (IGST) covering inter-state trade. Notably, IGST is not a standalone tax but a system designed to synchronize state and union taxes.
GST incorporates a 4-tier tax structure encompassing all goods and services within the slabs – 5%, 12%, 18%, and 28%. Given its comprehensive nature, the GST is a significant player in India’s indirect tax landscape.