Information asymmetry

GST data must be released

Gross goods and services tax (GST) collection for June 2024 came at Rs 1.74 trillion, a year-on-year increase of 7.7 per cent. The information, however, was not made public through the usual press release with details as has been standard practice. The headline tax collection number was disclosed to reporters informally this time. It has also been reported that this would now be the norm. The shift is clearly disturbing and must be avoided. At a time when transparency and disseminating timely information are becoming crucial — especially given India’s intent to attract more global investment — discontinuing a practice that had become routine can be counterproductive. Notably, this comes within days of Indian-government bonds being formally included in one of the global indices for the first time.

While it is correct that the GST system still needs a fair bit of adjustment to attain its intended potential, it serves as an important high-frequency indicator for a variety of stakeholders. It is regularly tracked by many, including financial-market analysts and investors. Given the official numbers like the gross domestic product (GDP) data come with a significant lag, monthly GST collection gives a broad sense of how the economy is doing. Interestingly, one of the reported reasons for discontinuing the release is said to be buoyant tax collection, which arguably gives an impression that the government is collecting too much tax. To be fair, the official reason for discontinuing the monthly release is not known, but the level of tax collection cannot be the reason. It is incorrect at various levels. First, gross GST collection is not for the Centre alone. It includes the share of the states. It also includes the compensation cess, which is being used to repay the loans taken to compensate states for their revenue shortfall during the pandemic. Second, the general government Budget deficit remains elevated and is likely to be 7.5-8 per cent of GDP in the current year. This means the government is not collecting enough taxes to meet its expenditure. Thus, either the level of tax collection has to go up or the expenditure needs to come down.

Finally, and more importantly, the GST system has underperformed in revenue collection. GST collection, net of refunds, last financial year — based on the provisional GDP estimate for the year — was just 6.1 per cent of GDP compared to collection worth about 6.3 per cent of GDP from the taxes subsumed in GST in 2016-17. It is also worth noting that gross collection includes the compensation cess, which was expected to be discontinued after the completion of five years. The government is collecting lower taxes than it used to in the pre-GST system. Further, as economist Arvind Subramanian and others have shown, the Union government has lost significantly in terms of revenue after the implementation of GST. Thus, what is needed at this stage is to significantly reform the GST system with adjustments in both rates and slabs, which will help improve tax collection. The immediate focus of the government should be to work with the states on improving the GST system. If there is uneasiness among the general public regarding GST collection, the government should work on improving its communication. Discontinuing the official release will only increase the information gap.