GST regime in India has transformed fiscal federalism: Bibek Debroy

The Goods and Services Tax regime has altered the contours of fiscal federalism in India, and the steady growth of GST revenue is a robust barometer of the reform’s success according to Bibek Debroy (Chairman of the Economic Advisory Council to the PM).

In a working paper titled ‘How the Pennies Drop: What GST Revenue Data Tells Us and What it Doesn’t’, Debroy also proposed constructing a GST Rate Index to help track relative movements of the tax rates and get a sense of how it impacts tax collections and taxpayer behavior. Goods and Services Tax (GST) introduced in India in 2017 not only impacted the economy but also altered the contours of fiscal federalism in India.

“Amongst others, the steady growth of GST revenue has been a robust barometer of the success of the reform,” he said.

Debroy also suggested an innovative way for computing the collection rate of GST, using only publicly available data, saying this has potential applications in revenue modeling; analysis of trends across time and geographies, and policy formulation.

” We propose to construct a GST Rate Index. The rate index is intended as an indicator of the effective rate and is computed using GST rates data readily available in the public domain,” he said.

Debroy added that after the introduction of GST, the Centre and states pooled their jurisdiction in matters related to the regulating of the new tax, especially in areas like policy making, fixation of rates, drafting of laws/rules etc.

“This is at times cited as a restriction on the powers of the states,” he said, adding that it is equally a “restriction” for the central government.

Keeping in mind that the impacts of GST have been measured on several metrics logistics efficiencies, enhancing trade between states easing compliance by introducing uniform processes and procedures, Debroy said perhaps the biggest indicator of the efficiency and efficacy of a tax reform has to be the revenue it yields.

According to Debroy, in the six years since its launch, GST revenue collections have gone from strength to strength. Further, he added this is true for both collections on domestic supplies and integrated GST (IGST) paid on imports is included with the trend, particularly sharp from 2020-21 onwards.

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