The record monthly Goods and Services Tax (GST) collection of Rs 1.68 lakh crore in April, a 20% increase from April last year, is an encouraging statistic, despite the subdued sentiment due to rising levels of inflation. Last month’s cleanup is Rs 25,000 crore higher than the previous record set in March. Attributed to improved compliance behavior and tougher enforcement action against tax evaders, the highest collection since the GST was rolled out in 2017 sends largely positive signals, although concerns remain. While it reflects a recovery in economic activity despite the escalation of the geopolitical conflict and the effect of tighter credit standards for inputs, it is also worth noting the huge rise in input prices, visible in the surge retail rates.
The overall numbers remain exciting: GST offset collections, which are used to reward states, were up 13.08% from March. In April, 84.7% of registered businesses paid taxes, up from 78.3% a year ago. During the month, revenue from the import of goods increased by 30% and that from domestic transactions, including the import of services, by 17% compared to the previous year. Twenty states and UT saw more than 14% growth in GST collections in April. Most may be able to achieve 14% revenue growth, the level guaranteed under the compensation mechanism which ends on June 30. The worrying part is the divergence between the states. While Manipur experienced a 33% contraction, there was a 33% growth in Uttarakhand.
Indirect taxes like the GST do not discriminate between rich and poor because everyone pays the same rates, while direct taxes focus on income levels and profits. Revenues from personal income tax are growing faster than those from corporate taxes, shifting the tax burden to those with less ability to pay. The seemingly unequal nature of the tax collection system is an unresolved problem and calls for a rationalization of GST rates, where the highest brackets are confined to high-end consumer items.