During a Rajya Sabha session on March 21, 2023, Finance Minister Smt. Nirmal Sitharaman responded to questions about inequality in GST collection in India. The questions were posed in response to the Oxfam Report 2023, which stated that India’s poorest 50% contribute two-thirds of GST revenues, while the richest 10% contribute only 3%. The following are the minister’s responses:
Inequality in GST Collection in India
The Finance Minister was asked if the government is aware of the Oxfam Report 2023, which claims that while India’s richest 10% contribute 3% to GST, the poorest 50% contribute two-thirds of GST revenues. If so, describe the government’s efforts to reduce inequality; if not, explain why.
The Goods and Services Tax (GST) is a consumption tax that combines various indirect taxes into a single tax structure, streamlining the taxation process, she explained. GST is an indirect tax that is collected from suppliers of goods and services rather than final consumers. As a result, it is impossible to determine who pays how much GST. The top 22% of Indian businesses with a turnover of more than 50 crores pay 90% of the GST, according to data from return filing. Exempt from taxation are goods such as unpackaged food grains, fruits and vegetables, and services such as education and health. Furthermore, items such as edible oil, life-saving medicines, and fertilisers are taxed at 5%.
She went on to say that the Oxfam Report on indirect taxes is based on estimates of spending on specific food and non-food items. According to the report, the bottom 50% of the income distribution receives 64.3% of the total GST collected from these food and non-food items, while the top 10% receives 3-4%. As a result, rather than the total GST revenue, the percentage is calculated using GST from only a subset of items. The items taken by the Oxfam Report are unknown. It appears to be based, however, on a number of implausible assumptions rather than irrefutable or verifiable facts.
Impacts of GST Compliances on Small Businesses
The minister was also asked if the government is aware that the current GST regime is negatively impacting small businesses due to increased operational costs of compliances, and if so, what concrete steps are being taken to reduce these costs.
With the implementation of GST, all compliances are now available online with very little physical interaction, according to the Finance Minister. Across the country, compliance is consistent. Prior to the implementation of GST, each state had its own set of rules and regulations. GSTN provides services such as online registration, returns, GST payment, and refunds. Taxpayers are not charged for these services. Exemption and composition limits in GST are significantly higher than pre-GST levels, at Rs. 40 lakh (for goods and Rs. 20 lakh for services) and Rs. 1.5 crore, respectively.
She went on to say that QRMP (Quarterly Return Monthly Payment), SMS-based Nil return filing, auto populating returns, providing ITC statements, automatic transfer of sanctioned refund to account, and other services had a positive impact on small businesses. Furthermore, by using the TReDS GST invoice, small businesses and MSMEs can obtain simple credit/loan facilities (Trade Receivable Discounting Systems). In fact, the GST regime has simplified business and reduced compliance costs.
Overall, the Finance Minister’s response emphasised the government’s efforts to reduce inequality in GST collection and make doing business easier for small businesses by reducing compliances under the GST regime.