Strong GST Collections Dispel Fears of Revenue Declines

The recent data on Goods and Services Tax (GST) collections has dispelled concerns regarding potential significant declines in revenue, according to a report from the State Bank of India (SBI) released on November 1, 2023. Despite fears circulating among various stakeholders, the Gross GST collections for October 25, reflecting returns filed in September, rose by a notable 4.6 percent to reach Rs 1.96 lakh crore.

This increase comes at a time when many economic voices anticipated a downturn following the rationalisation of GST rates. The report from SBI indicates that while the gross domestic collection improved by 2 percent year-on-year, the revenue from imports saw a more substantial jump of 12.8 percent for the month. Notably, the issuance of E-way bills hit record levels in September, totaling 13.2 crore, signifying enhanced business activity.

Positive Projections for States Post-Rationalisation

Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at SBI, commented on the implications of these figures, suggesting that if states experience similar revenue trends following the GST rationalisation, they will likely emerge as net gainers in the fiscal year 2026. He stated, “Assuming that states experience the same gains (and losses) post rationalisation as in October, we project GST revenue for FY26 wherein most of the states seem to experience positive gains for the entire fiscal post rationalisation.”

While the Union government had projected a potential revenue loss of Rs 48,000 crore due to GST rate changes, some research agencies had exaggerated this figure, predicting losses as high as Rs 10 lakh crore. Historical data from past GST rate adjustments in July 2018 and October 2019 suggests that such rationalisations do not typically weaken revenue collections. Instead, they often lead to a temporary adjustment followed by stronger revenue inflows.

Implications for Business and Economic Outlook

The strong growth in GST collections and the record-high E-way bills reflect a revitalised business environment, which is crucial for economic stability. The total refunds processed in October also underscore this positive trend, amounting to Rs 26,934 crore and marking a year-on-year growth of 39.6 percent.

These indicators suggest that fears of drastic revenue declines may be unfounded, as the economy adapts to changes in the GST framework. As the government continues to refine its tax policies, effective communication and strategic adjustments will be essential to maintain this upward momentum in revenue collections.

In summary, the latest GST figures provide a robust counter-narrative to concerns about revenue losses, reinforcing the optimism for both state economies and the broader fiscal landscape.