The easing growth in gross Goods and Services Tax (GST) collections in the current financial year largely depicts that India’s economy has now transitioned into a “stabilised phase” from a “recovery phase”, meaning sub-10% growth may continue in the near-term going forward, say experts.
Stabilisation phase signifies a maturing tax system, successful implementation of compliance measures, and an economy that has largely recovered from the pandemic’s impact. The GDP growth too is expected to be slower this year, with many economists pegging it at 7%, as against 8.2% in FY24.
However, to assume that the high-growth phase (of 12% seen in FY24) of gross collections is over, would be “too-early” and “premature”, say experts.
So far, in the first quarter of FY25, gross collections growth has averaged 10.1%, around 2 percentage points lower than average growth of last fiscal. The months, May and June, in particular, have recorded 10.2% and 8.1% growth in collections, respectively, which are the lowest rates in close to three-years.
One key reason for the low growth could be general elections, which indirectly affected timely audits, and thereby recoveries, experts say. Vivek Baj, Partner at Economic Laws Practice (ELP) said that GST officials who were otherwise contributing significantly towards conducting timely audits, and investigations, were engaged in conducting elections, which perhaps lead to low recovery, and thus less collections.
In the initial years of GST implementation, experts say, significant efforts were made to improve compliance through measures such as late fee waivers, relaxation of provisions, audits, scrutiny, and technological integration, which resulted in a more robust and transparent tax system.
Recoveries for the period concerning the years FY18, FY19 and FY20, were high in number as taxpayers during the period were getting adjusted to the GST compliance process, but that is not the case now. Therefore, recoveries for the later years is going to be low, and hence that would dampen the collections growth going forward, say experts.
Ankur Gupta, practice leader – indirect tax at SW India, said that cases pertaining to FY18, FY19, and FY20, are mostly settled now, and recoveries have been made, and thus the period of high growth in collections may not be visible now.
To be sure, FY22, FY23 and FY24, recorded 30%, 22% and 12% growth in collections, respectively. In absolute terms, FY24 marked a milestone as total collections crossed Rs 20 trillion in the entire fiscal.
Gupta, however, said that even though the high growth period driven by post-pandemic recovery and compliance improvements may have plateaued, sustained policy interventions, continued economic recovery, and technological advancements can still drive “moderate growth” in GST collections, he said.
Mahesh Jaising, partner, Deloitte India said that various factors such as economic cycles and seasonal changes in consumer behaviour influence GST collections. “The recent figures may indicate short-term adjustments rather than a permanent slowdown in growth.”
Experts also say that with the issuance of a series of circulars issued pursuant to the 53rd GST council meeting, held in June, there appears to be a change in the trend of the conduct of government as they appear to be more active and focused. “This will definitely lead to higher GST collections in the upcoming quarters,” said ELP’s Baj.
