GST Revenues Hold Steady at 6.7% of GDP Despite Rate Cuts

Despite several GST rate reductions under GST 2.0, revenue collection remains steady at 6.7% of GDP, indicating robust compliance and economic activity. The Goods and Services Tax (GST) collections have shown strong resilience in the face of repeated rate cuts, with revenues rebounding quickly after short-term declines. The data shows that the GST-to-GDP ratio dipped to 6.1% in FY20 after rate reductions in October 2018 and July 2019 lowered the average effective GST rate to 11.6% from 14.4% when the tax was rolled out in 2017. The ratio fell further to 5.7% in FY21 during the pandemic. However, collections recovered strongly thereafter, rising to 6.3% in FY22 and stabilizing at 6.7% from FY23 through FY25, supported by buoyant growth and stricter compliance measures. Economists expect the newly announced GST 2.0 reforms to follow the same trajectory. Experts believe that rate cuts could cause an initial monthly dip in collections, but inflows are likely to rebound with sustained growth. The shift from four to two slabs is expected to expand the tax base, enhancing compliance and supporting long-term tax buoyancy.