All GST collections pocketed by Centre a myth: Nirmala Sitharaman

Finance Minister Nirmala Sitharaman says it is a myth that all Goods and Services Tax (GST) collections are pocketed by the Centre.

"GST contributes significantly to state revenues – States receive 100% of SGST collected in that state, approx. 50% of IGST (i.e. on inter-state trade). A significant portion of CGST, i.e., 42%, is devolved to the states based on the Finance Commission's recommendations," the finance minister says in a post on X.

Without GST, states' revenue from subsumed taxes from financial year 2018-19 to 2023-24 would have been ₹37.5 lakh crore. With GST, states' actual revenue amounted to ₹46.56 lakh crore, Sitharaman says.

Despite the GST rate being less than the prescribed Revenue Neutral Rate and COVID-19 affecting the revenues, GST collections (as a % of GDP) have now reached the levels they were before GST (both net and gross), the finance minister explains.

This demonstrates that the Centre and states, collectively, through better tax administration, are able to collect the same revenue with a lower burden on our taxpayers, she says.

GST exemplifies cooperative federalism in India, empowering states, according to the finance minister. The GST Council , with a 75% majority vote requirement, assigns one-third voting power to the Centre and two-thirds to states. Out of 52 meetings, all decisions but one was reached through consensus. “As Chairperson of GST Council , I have ensured all states' voices are equally heard without bias,” says Sitharaman.

GST revenue for the month of April breached the ₹2 lakh crore mark for the first time. GST collections last month hit ₹2.10 lakh crore, registering 12% year-on-year growth over ₹1.87 lakh crore in April 2023.

The idea of GST was first mooted during the former Prime Minister Atal Bihari Vajpayee-led NDA government. In 10 years, UPA was unable to achieve political consensus on GST. Under the leadership of Prime Minister Narendra Modi, GST Acts were passed by Parliament in 2016, says Sitharaman.

Before GST, India's indirect tax system was fragmented and complicated, and every state was practically a distinct market in itself with different rules and tax rates. GST streamlined 17 taxes and 13 cesses into a 5-tier structure, simplifying the tax regime, says Sitharaman. The turnover threshold for registration rose to ₹40 lakh for goods and ₹20 lakh for services (from ₹5 lakh on average under VAT). GST also reduced 495 different submissions (challan, forms, declarations, etc) across states to just 12.

GST simplified compliances through uniform processes, simple registration, single returns, and a fully IT-driven system with minimal physical interface, the finance minister says.

“The e-way bill system removed inter-state checkpoints, reducing logistics costs. Trucks travelled 44% more daily, and corruption at tax 'nakas' decreased. Consequently, domestic goods' inter-state trade surged to 35% of GDP in FY22, up from 23.5% in FY18,” she says.