What Can Be The Influence of GST on India's Budget Distribution?

GST, or Goods and Services Tax, is a multi-tiered taxation system that encompasses the sale of goods and services within a country.

The primary objective of this tax system is to eliminate the cascading impact of other indirect taxes, and it is applicable nationwide.

India applies GST to the supply of specific products and services, replacing various previous indirect taxes such as service tax, excise duty, VAT, purchase tax, and more.

In December 2023, GST collections increased by 10%, reaching around Rs 1.64 lakh crore compared to Rs 1.49 lakh crore in the same month in 2022, as reported by the finance ministry.

There was a prominent 12% growth in gross GST collection, reaching Rs 14.97 lakh crore In the April-December 2023 period. This marked an increase from Rs 13.40 lakh crore collected during the same period in the previous year, as stated by the ministry.

Implemented by the Modi government in July 2017, the GST structure significantly influences the budget allocation by the Union Finance Ministry.

As Finance Minister Nirmala Sitharaman is scheduled to present the interim Budget in the Lok Sabha on February 1, 2024, let's explore the role of the taxation system in shaping the budget.

The Impact of GST on Budget

Since the introduction of a unified tax structure, the tax composition in the budget has transformed. The GST system aims to break down fiscal barriers among states.

Previously, both the Centre and states imposed multiple taxes like excise duty, octroi tax, VAT, entry tax, etc. However, these have now been amalgamated under the GST umbrella.

Before GST, the Centre solely collected service taxes. Now, with the uniform tax structure, both the state and the Centre collect identical taxes on both services and goods.

Applying an 18% GST nationwide, both the Centre and states receive 9% each, termed CGST and SGST, respectively.

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