How the Pennies Drop

Abstract

The introduction of a Goods and Services Tax (GST) in India in 2017 not only impacted the economy, but also altered the contours of fiscal federalism in India. Amongst other indicators, the steady growth of GST revenue has been a robust barometer of the success of the reform. This paper delves into the trends of GST collections to evaluate the efficacy of the reform to generate revenue. Subsequently, an attempt is made to answer the questions – what drives revenue growth, and are the collections, collection efficiencies, and buoyancy of collections better under GST as compared to the pre-GST period? This is done by examining GST collections while controlling for extraneous factors, such as inflation. Further, a novel mechanism for computing the collection rate of GST, using only publicly-available data is proposed. This has potential applications in revenue modelling, in analysis of trends across time and geographies, and for policy formulation. Rationalization of tax rates, structural efficiencies, widening of the tax base, and enhanced compliance are seen to contribute to the positive outcomes observed. In order to address the paucity of disaggregated data on enforcement in the public domain, the paper uses judicial data from District Level Courts to analyse spatial dimensions of GST enforcement. Overall, it is seen that GST has delivered on multiple fronts, including revenue growth, formalization of the economy, reduced rates of taxation, and creation of a more unified market. We also observe that post-GST tax buoyancy and collection efficiencies have shown significant improvement.