GST Collections Face Weakest Growth of FY 2024-25 as Refunds Surge by 45%
India’s Goods and Services Tax (GST) receipts saw a significant slowdown in December, with net GST growth falling to 3.3%, marking the weakest growth rate of the financial year 2024-25. The slowdown in GST collections is being attributed to a combination of factors, including a rise in refunds and slower growth in both domestic and import-related tax revenues.
Gross GST Inflows Hit Three-Month Low
India’s gross GST receipts for November transactions stood just under ₹1.77 lakh crore, reflecting a growth rate of 7.3% compared to December 2023. This marked the second-lowest growth rate in over three years. The only other months with similarly low growth in the past 43 months were June 2024 (7.3%) and September 2024 (6.5%). December’s performance indicates a trend of decelerating growth that has been affecting GST collections across the country.
A key factor behind the significant dip in net collections was a sharp 45.3% rise in taxpayer refunds, which surged to ₹22,490 crore in December. After accounting for these refunds, net GST receipts for the month amounted to ₹1,54,366 crore, showing slower-than-expected growth.
Domestic and Import Revenues Show Slowdown
The slowdown in GST collections is partly due to a dip in domestic and import tax revenues. For December, revenue from domestic transactions grew by just 8%, down from 9.4% in November. Meanwhile, revenues from imports grew by a meager 3.9%, significantly slower than the 5.9% growth seen in November.
In contrast, refunds were significantly higher, especially in December. Refunds related to domestic transactions rose by 31%, while refunds to exporters shot up by 64.5%. These increased payouts are contributing to the slower growth in net collections, which in turn reflects the economic challenges being faced by the country.
Year-to-Date Growth Falls Short of Budget Expectations
For the first nine months of FY 2024-25, India’s net GST receipts grew by 8.6%, accumulating almost ₹14.45 lakh crore in collections. This growth rate is lower than the 9.2% recorded until November and is also falling short of the 11% growth anticipated in the government’s budgetary targets. The slowdown in GST collections mirrors the broader economic trend of reduced GDP growth, which has impacted government revenues.
Abhishek Jain, Partner and Head of Indirect Tax at KPMG, noted that the current GST growth trends are consistent with the slowdown in India’s GDP growth. However, he added that if GDP growth picks up in the current quarter, GST collections are expected to recover in tandem.
State-Wise Variations in GST Growth
GST growth has been uneven across Indian states, with some reporting contraction and others posting healthy gains. In December, four states saw a contraction in their GST revenues, compared to seven states in November. Arunachal Pradesh continued to be the hardest-hit state, with its revenues falling by 27% for the third consecutive month. Other states like Meghalaya also saw a decline, with revenues down 12%.
Meanwhile, some states, especially smaller ones, recorded impressive growth. Sikkim led the charge with a 30% increase in GST receipts, followed by Haryana (28%) and Punjab (22%). However, large states such as Uttar Pradesh, Madhya Pradesh, Bihar, West Bengal, and Gujarat, saw minimal growth, with Uttar Pradesh and Madhya Pradesh posting just 1% growth, while Bihar and West Bengal saw growth of only 2% and 3%, respectively.
Concerns Over Slower Growth in Key States
The sluggish growth in GST collections from major states such as Uttar Pradesh, Bihar, West Bengal, and Gujarat has raised concerns among policymakers. M.S. Mani, Partner at Deloitte India, pointed out that the low growth in these states may warrant a deeper analysis to understand the sectoral breakdown of GST collections. A prolonged slowdown in key states could have significant implications for India’s overall tax revenue and economic recovery.
Impact of Rising Refunds on GST Growth
The rising refunds are another key issue affecting GST growth. Refunds to taxpayers reached ₹22,490 crore in December, up 45.3% compared to the previous month. This surge in refunds has played a significant role in slowing down the net GST receipts. While refunds are a necessary aspect of the tax system, their rise indicates that businesses are facing challenges that could affect the overall tax base.
Outlook for the Coming Months
While the growth in GST receipts has slowed considerably in December, experts remain cautiously optimistic about the future. If India’s GDP growth rebounds in the upcoming quarter, as expected, it could drive a recovery in GST collections. The government’s efforts to stabilize the economy and boost domestic consumption could also contribute to improving tax receipts in the months ahead.
However, the current slowdown underscores the need for continued economic reforms and measures to boost the tax base, particularly in key states where growth has been weaker than expected. The coming months will be critical in determining whether GST collections can meet the budgetary targets set for FY 2024-25.
Conclusion
India’s GST growth has hit its slowest pace of the year in December, with net collections growing by just 3.3%, impacted by rising refunds and slower domestic and import revenues. While the year-to-date growth stands at 8.6%, it is falling short of the 11% growth forecasted in the government’s budget. As economic growth shows signs of slowing, the government will need to monitor GST collections closely and consider sectoral breakdowns in states that are lagging behind in order to achieve its fiscal targets.
