GST helped increase revenue buoyancy of states, says FM

GST helped increase revenue buoyancy of states, says FM

Subject : Economy

Section: Fiscal Policy

Concept :

• The Goods and Services Tax (GST) regime has reduced the tax burden on consumers with a lower tax incidence on many common use items and has increased revenue buoyancy for states and Centre, Finance Minister Nirmala Sitharaman said.
• Stating that the all-round benefits of the indirect tax regime are “exemplary”, she said GST revenue buoyancy for states has improved to 1.22 after its implementation from 0.72 before the rollout of GST.

Revenue / Tax Buoyancy

• Tax buoyancy explains relationship between the changes in government’s tax revenue growth and the changes in GDP.
• It refers to the responsiveness of tax revenue growth to changes in GDP.
• When a tax is buoyant, its revenue increases without increasing the tax rate.
• A similar looking concept is tax elasticity. It refers to changes in tax revenue in response to changes in tax rate.
• Tax buoyancy depends mainly on
  • Size of the tax base
  • Tax administration regime
  • Reasonableness and simplicity of the tax rates
  • Wealth creation