Inflation Is Driving GST Revenue Rise

Context:

As per the recent SBI research, High inflation is driving about 8% of the current surge in Goods and Services Tax revenues, and inflation adjusted GST collections so far this year are 26% higher than pre-COVID level.

Relevance:

GS III- Indian Economy

Dimensions of the Article:

1. Key Points
2. What is GST?
3. Goods and Services Tax (GST) Act
4. What are GST Slabs?
5. GST Council
6. Matters on which GST Council makes recommendations

Key Points:

• The report shows that even after accounting for higher inflation, GST collections have remained robust and this could be driven by higher consumption.
• SBI Research also raised its current account deficit target for this year to 3.7% of GDP, projecting the trade deficit to widen to 8.5% of GDP in 2022-23.
• GST collections have clocked over ₹1.4 lakh crore for five successive months, with July recording the second highest revenues since the indirect tax regime’s introduction
• Additionally,  better compliance and economic recovery are also considered as some of the factors leading to higher GST revenue.
• The gap between the two (actual GST revenue versus inflation adjusted revenue) started increasing since May 2020 with a significant difference between the two since mid2021.

What is GST?

• GST is a destination-based indirect tax and is levied at the final consumption point.
• Under it, the final consumer of the goods and services bear the tax charged in the supply chain.
• GST is a transparent and fair system that prevents black money and corruption and promotes new governance culture.

Goods and Services Tax (GST) Act:

• Goods and Services Tax (GST) Act came into effect in 2017.
• Goods and Services Tax (GST) was introduced by the Government of India to boost the economic growth of India. GST is considered to be the biggest taxation reform in the history of the Indian economy.
• The power to make any changes in the GST law is in the hands of the GST Council. GST Council is headed by the Finance Minister. One hundred and first amendment act, 2016 introduced the GST in India in July 2017.

What are GST Slabs?

• Over 1300 items and over 500 services are included in India’s 4 main GST slabs.
• There are five general tax rates: 0%, 5%, 12%, 18%, and 28 %; in addition, a cess is imposed on select “sin” commodities in addition to the 28 % tax.
• The GST Council reviews the products included in each slab rate on a regular basis to make adjustments for changes in market conditions and business needs.
• The revised structure makes sure that necessities are subject to lower tax categories and that luxury goods and services are subject to higher GST rates.
• Demerit goods, including alcoholic beverages, cars, and tobacco products, are taxed at a rate of 28 percent plus an additional GST compensation

GST Council

• Goods & Services Tax Council is a constitutional body for making recommendations to the Union and State Government on issues related to Goods and Service Tax.
• As per Article 279A (1) of the amended Constitution, the GST Council has to be constituted by the President within 60 days of the commencement of Article 279A.
• The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2016, for the introduction of Goods and Services Tax in the country was introduced in the Parliament and passed by Rajya Sabha on 3rd August 2016 and by Lok Sabha on 8th August 2016.
• GST Council is an apex member committee to modify, reconcile or procure any law or regulation based on the context of goods and services tax in India.
• The GST council is responsible for any revision or enactment of rule or any rate changes of the goods and services in India.
• The council contains the following members:
• Union Finance Minister (as chairperson)
• Union Minister of States in charge of revenue or finance (as members)
• The ministers of states in charge of finance or taxation or other ministers as nominated by each state’s government (as members).

Matters on which GST Council makes recommendations

• Taxes, cesses, and surcharges levied by the Centre, States and local bodies which may be subsumed in the GST;
• Goods and services which may be subjected to or exempted from GST;
• Model GST laws, principles of levy, apportionment of IGST and principles that govern the place of supply;
• Threshold limit of turnover below which goods and services may be exempted from GST;
• Rates including floor rates with bands of GST;
• Special rates to raise additional resources during any natural calamity;
• Special provision with respect to Arunachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand;
• Any other matter relating to the goods and services tax, as the Council may decide.

-Source: The Hindu