Context: GST collections remain above Rs.2 trillion in May

Source: The Hindu

After increasing 16.4% in May to more than 2.01 lakh crore, gross goods and services tax (GST) receipts continued to surpass Rs. 2 trillion for the second consecutive month. In April, GST receipts reached a record high of Rs. 2.37 lakh crore. The mop-up was 1,72.739 crore in May 2024.

While GST revenue from imports increased 25.2% to 51,266 crore in May 2025, overall revenues from domestic transactions increased 13.7% to almost Rs. 1.5 lakh crore. The total amount of gross GST revenues was Rs. 2,01,050 crores.

Smaller states like Gujarat, Andhra Pradesh, and Telangana have seen gains of up to 6% in collection, while larger states like Maharashtra, West Bengal, Karnataka, and Tamil Nadu have reported increases of 17% to 25%. There have been median gains of 10% in a few states, including Madhya Pradesh, Haryana, Punjab, and Rajasthan.

Model Question:

Critically examine the impact of Goods and Services Tax (GST) on India’s federal structure and economy.

Model Answer:

The Goods and Services Tax (GST), implemented on 1st July 2017, is hailed as one of the most significant indirect tax reforms in India, aimed at creating a unified national market by replacing multiple cascading taxes with a single tax regime.

Impact on Federal Structure:

Positive Aspects:

1. Cooperative Federalism: GST Council, comprising Union and State representatives, promotes consensus-based decision-making, enhancing cooperative federalism.
2. Revenue Sharing: GST revenues are shared between the Centre and States (CGST + SGST), balancing fiscal responsibilities.

Challenges:

1. Erosion of Fiscal Autonomy: States have limited ability to independently alter tax rates or introduce new indirect taxes.
2. Compensation Issues: The delay and disputes over GST compensation (especially post-COVID) have led to tension between the Centre and States.
3. One-size-fits-all model: May not suit the diverse economic realities of different states.

Impact on Indian Economy:

Positive Aspects:

1. Ease of Doing Business: Unified tax structure and e-filing improved compliance and logistics efficiency.
2. Formalization of Economy: Greater tax net inclusion due to input tax credit mechanism and e-invoicing.
3. Increased Revenue in Long-Term: Despite initial revenue shocks, GST collections have improved over time (₹1.7 lakh crore+ monthly average in 2024-25).

Challenges:

1. Complex Structure: Multiple tax slabs (0%, 5%, 12%, 18%, 28%) and exceptions dilute the ‘one nation, one tax’ ideal.
2. Compliance Burden: Small businesses face challenges with frequent filings, e-way bills, and audits.
3. Initial Revenue Losses: Both Centre and States faced transitional revenue dips.

While GST has strengthened fiscal cooperation and modernized tax administration, its success depends on addressing concerns of state autonomy, simplifying tax structure, and ensuring timely compensation. A dynamic and responsive GST system can significantly contribute to India’s economic growth and fiscal federalism.