India’s record goods and services tax (GST) collection of Rs 2.10 lakh crore in April 2024 witnessed an interesting trend: Uttar Pradesh overtook Tamil Nadu in monthly collections registering a growth of 19 percent, while the southern state, which has traditionally stayed ahead, witnessed a rise of 6 percent last month.
At Rs 12,290 crore in April 2024, UP became the fourth largest contributor to GST collections after Maharashtra, Karnataka and Gujarat. The state with the largest number of factories in the country – Tamil Nadu slipped to fifth place.
In April 2023 Tamil Nadu's GST collection was Rs 11,559 crore while UP's was Rs 10,320 crore.
From robust steps to curb tax evasions, and aggressive spending on infrastructure, to a boost in tourism owing to the recently-inaugurated Ram Mandir, experts attribute several factors to the recent surge in UP’s GST revenues, a state that was largely agrarian for a long time.
Ram Mandir boost
UP now houses the Ram Mandir in Ayodhya, which could also be partially responsible for the boost in revenues, according to experts.
The total annual expenditure by tourists (domestic and foreign) in UP may cross Rs 4 lakh crore by the end of 2025 leading to an additional tax revenue of Rs 20,000-25,000 crore in FY25, given the completion of Ram Mandir in Ayodhya and various initiatives taken by the state government to promote tourism, according to a report by SBI Research released on January 21.
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““There has been increase in travel and tourism as well in recent months, particularly after inauguration of Ram Mandir in Ayodhya. All these factors collectively would have given a fillip to the GST revenues of the state," according to Pratik Jain, Partner and National Leader for Indirect Tax at PwC.
While tours and travels face a GST rate of 5-18 percent, air travel attracts a levy of 5-12 percent and accommodation in a hotel includes a duty of anywhere between 12 percent and 18 percent.
Capex push
UP has been leading in allocations for capital expenditure for the last few years and boasts of the second longest road network in India. Its capital outlay for 2024-25 is proposed to be Rs 1,54,747 crore, an increase of 6 percent over the revised estimate of 2023-24, as per an analysis by PRS Legislative Research. This is also a staggering 126.7 percent increase compared to the revised aim of Rs 68,254 crore for FY21.
According to Jain, UP’s focus on capital expenditure may be boosting its revenues, especially given road and infrastructure construction involves GST levies on several levels such as contractors and cement that add to the state’s kitty. Cement is taxed at 28 percent under the indirect tax regime of GST.
Notably, UP has allocated 5.9 percent of its total expenditure towards roads and bridges, which is higher than the average allocation by states of 4.6 percent in 2023-24.
Buoyant manufacturing
Beyond roads, the state has also been able to pitch itself as a key manufacturing base. It is among the top five states in India when it comes to the total number of factories in operation, as per the Annual Survey of Industries 2021-22 by India’s statistics ministry. The state was also one of the top performers when it came to manufacturing employment during the period.
From Samsung Electronics’ mobile phone facility – the world’s largest – in Noida, to PepsiCo India’s food plant in Mathura, UP has been able to become both a consuming as well as a manufacturing state.
“We are seeing a rise in UP’s GST collections in the past few months. Largely the reason is three-fold. First is enforcement of policies to prevent tax evasion and improving compliance, thereby, resulting in higher GST collection. Second, it is a large consumer state and therefore it is earning more GST revenues since it is a consumption-based tax. Third, is the infrastructure boost and efforts to industrialise the state,” according to Payal Thaker, Partner, Indirect tax, BDO India.
Jain pointed out that UP has also recently seen a lot of big players in IT companies setting up their data centres, which gives a further boost to the state’s coffers.
Notably, the state has emerged as a hub for IT enabled services (ITeS). As per the commerce ministry’s Invest India, UP has over 30 special economic zones for IT\ITeS and the government has also reserved 700 acres of land for an Electronics Mega City near Noida International Airport.
Data centres fall under the services category and thereby attract a GST of 18 percent.
According to both Thaker and Jain what truly is leading to the rise in UP’s GST revenues is the fact that it is now both a consumer as well as a fast-emerging industrial state.
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“We are seeing a very different UP today. If you look at other states that leads in GST collections Maharashtra, Karnataka Gujarat, they are all manufacturers as well as consumers. It is a combination of two that works the best and, that is what is working for Uttar Pradesh,” Thaker said.
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