State GST growth in FY18-FY21 is lower than pre-GST tax growth in FY14-FY17.
Despite the fact that GST collections have been breaking records of late, India Ratings and Research said that state GST (SGST) growth has been lower than the 9.8% growth registered by the levies subsumed under GST during FY14-FY17, with an average of 6.7 percent between FY18 and FY21.
“The share of state GST (SGST) in their own tax revenue (SOTR) was 55.4 percent in FY18-FY21, compared to 55.2 percent in FY14-FY17, indicating that the growth in both SGST and non-SGST components of SOTR was substantially similar.” According to India Ratings, “the GST rollout did not result in any incremental advantage to the SOTR.”
It went on to say that, prior to the implementation of the GST, producing/exporting states used to collect central sales tax (CST) of up to 2% on inter-state sales in addition to collecting VAT (sales tax) on intra-state sales. Assam, Chhattisgarh, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Meghalaya, Odisha, Sikkim, and Tamil Nadu — a mix of both producing and consuming states — were the states where CST contributed more than 4.5 percent to their SOTR from FY12 to FY17. Following the implementation of GST, the share of CST in SOTR decreased from 4.16 percent in FY17 to 0.95 percent in FY21 (RE).
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“SGST growth of 6.7 percent on average from FY18 to FY21 was lower than the 9.8 percent growth of the taxes subsumed under GST from FY14 to FY17,” it said.
According to India Ratings, because GST is a destination-based tax, goods and services are taxed where they are consumed rather than where they are created. “Even the centrally collected integrated GST (IGST) is shared with the state where the goods or services are sold, not with the state where they are produced.” As a result, consuming states were predicted to fare better following the implementation of GST.”
As a result, it stated, GST compensation has become such a vital source of revenue for states that without it, most states’ GST revenue growth would be less than 4%. “As a result, many states are refusing to accept its termination by June 2022 and are requesting an extension.””
The union government provided Rs 49,000 Crore in GST compensation to states in FY18, which compensates them for income shortfalls. In FY19, it was Rs 83,000 crore; in FY20, it was Rs 1.65 lakh crore; in FY21, it was Rs 2.78 lakh crore; and in FY22, it was Rs 2.39 lakh crore.
For compensation to states, the central government borrowed Rs 1.1 lakh crore in FY21 and Rs 1.59 lakh crore in FY22 and passed it on to them as back-to-back loans. As of April 27, compensation in the sum of Rs 78,704 crore for FY22 was still outstanding, equating to four months’ compensation.
On the basis of higher compliance and a faster economic recovery, GST receipts in April reached an all-time high of Rs 1,67,540 crore. It’s a 25,000-crore increase over the previous high of Rs 1,42,095 crore, which was set in March. “The gross GST revenue collected in April 2022 is Rs 1,67,540 crore, of which CGST is Rs 33,159 crore, SGST is Rs 41,793 crore, IGST is Rs 81,939 crore (including Rs 36,705 crore collected on imports of goods) and cess is Rs 10,649 crore (including Rs 857 crore collected on imports of goods),” according to an official statement.
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