GST as share of GDP on a par with personal income tax
- August 14, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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GST as share of GDP on a par with personal income tax
Subject :Economy
Section: Fiscal Policy
In News: Goods & services tax (GST) as a share of gross domestic products (GDP) at the same level as personal income tax share, a report by Finance Ministry shows.
Key Points:
- GST has become the largest contributor to indirect taxes, ever since its implementation in FY 2017-18.
- Share of GST in GDP went up to 3.1 per cent in FY23 from 2.8 per cent in FY21, During the same period share of personal income tax rose from 2.5 to 3.1 per cent of GDP.
- This rise in GST is attributed to consumption demand, compliance, and some impact of inflation. However, another view is that this trend is not leading to an overall regressive taxation regime.
- Apart from GST, indirect taxes also include Custom Duty and Central Excise Duty (levied mainly on petrol and diesel). At the same time, direct taxes comprise corporate income tax (CIT) and personal income tax (PIT).
- According to a budget document, the Direct and Indirect Tax receipts are individually estimated to grow at 10.5 per cent and 10.4 per cent, respectively.
- The overall tax (GTR) buoyancy is estimated at 0.99. As the tax collection from GST stabilises, it is likely to give a boost to the Indirect tax collection with an estimated GST buoyancy of 1.14 in the ensuing year.
- In BE 2023-24, it is estimated that the direct and indirect taxes contribute 54.4 per cent and 45.6 per cent, respectively, to Gross Tax Revenue (GTR).
- The sustained increase in GST is the cumulative impact of transparent and digital tax administration, rapid economic growth, and a boost in consumption expenditure, particularly at the lower income level in the economy. Stronger growth and high inflation has also contributed to the GST numbers.
- The increase in GST could also have some negative consequences:
- For example, it could lead to higher prices for goods and services, which could impact the purchasing power of consumers.
- GST on most of the food products is either zero or taxed at low rates, so the people from the lower income strata are protected. But if the indirect tax collections overtake direct tax collections.
Progressive and Regressive tax
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