Economic Survey | Has GST improved buoyancy of indirect tax system?

As per the Economic Survey, nominal GDP grew at a CAGR of 11.54 per cent during FY13 to FY17

Ahead of the presentation of the Union Budget 2023 on February 1, Finance Minister Nirmala Sitharaman on Tuesday tabled the Economic Survey 2022-23 in Parliament.

As per the Economic Survey, the aggregate State and Central taxes subsumed in the GST exhibited a Compound Annual Growth Rate (CAGR) of 11.53 per cent in the pre-GST period (FY13 to FY17).

The nominal GDP grew at a CAGR of 11.54 per cent during this period.

Since the growth of the subsumed taxes was marginally less than the growth of GDP, the buoyancy was just below one and could be taken as one for practical purposes.

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The post-GST period experienced many headwinds, most notably the shock of the Covid pandemic.

The nominal GDP grew at a slower CAGR of 9.6 per cent in the post-GST years (FY19 to FY23). However, GST collections have grown at a CAGR of 10.9 per cent, implying aggregate GST collections buoyancy of around 1.1.

This has occurred even though the effective GST rate has fallen from inception (from 14.4 per cent in 2017 to 11.6 per cent in 2019, according to RBI).

Improved tax collection efficiency was one of the main arguments in favour of GST.

The evidence so far suggests that GST is indeed showing a higher buoyancy than the pre-GST system. This augurs well for future resource mobilisation in the economy.