Estimated GST shortfall likely to shrink after growth in revenue

Overall GST collections that saw their positive growth (this financial year) of 4% in September, after having plunged by 72% in March, posted a year-on-year growth of over 10% in October, when they crossed 1.05 lakh crore.
Nirmala Sitharaman, India's finance minister, wears a protective mask while speaking during a news conference in New Delhi. Due to the Covid-19 pandemic and subsequent 68-day lockdown since March 25, GST collections fell sharply in April and continued to contract till August.(Bloomberg)
Nirmala Sitharaman, India's finance minister, wears a protective mask while speaking during a news conference in New Delhi. Due to the Covid-19 pandemic and subsequent 68-day lockdown since March 25, GST collections fell sharply in April and continued to contract till August.(Bloomberg)
Updated on Nov 08, 2020 04:56 AM IST
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Hindustan Times, New Delhi | ByRajeev Jayaswal

The 2.35 lakh crore estimated shortfall in Goods and Services Tax (GST) collections in 2020-21 is expected to shrink by almost 15% with revenue seeing positive growth since September and the momentum expected to continue in the remaining five months of the financial year, two finance ministry officials said.

Overall GST collections that saw their positive growth (this financial year) of 4% in September, after having plunged by 72% in March, posted a year-on-year growth of over 10% in October, when they crossed 1.05 lakh crore. The October number added to the raft of good news about the economy, including car sales and a strong Purchase Manager’s Index score, an indication of a pick up in manufacturing activity.

Besides positive GST collections since September, the number of states having a year-on-year decline in revenue has reduced from 15 in September to seven in October, the officials added on condition of anonymity. “The trend, if sustained in the next five months, will reduce the gap between projected revenue and actual revenue for FY-21 by about 35,000 crore,” one of the officials said.

According to official data, 15 regions that saw a fall in revenue in September 2020 compared to the same month last year included Chandigarh (10% drop in GST revenue), Delhi (7%), Sikkim (49%), Arunachal Pradesh (20%), Manipur (19%), Mizoram (42%), Tripura (3%), Meghalaya (6%), Daman and Diu (83%), Karnataka (5%), Goa (23%), Lakshadweep (58%), Puducherry (1%), and Telangana (2%).

And growth in revenue collections in Uttar Pradesh and Maharashtra was stagnant.

The year-on-year revenue collections contracted only in seven regions in October this year, including in Chandigarh (3%), Delhi (8%), Sikkim (5%), Daman and Diu (91%), Lakshadweep (55%), and Andaman and Nicobar Islands (42%).

“It is expected that the collections November onward would be even better, which would not only reduce the estimated shortfall of 2.35 lakh crore [in 2020-21], but also see improved collections of compensation cess, therefore, proportionately reduce the borrowing liabilities,” the second official said.

At the time of introducing the new indirect tax regime, the GST law assured states a 14% increase in their annual tax revenue for five years ending June 30, 2022 and the Centre committed to meet any shortfall in revenue through the cess levied on luxury goods and sin products such as liquor, cigarettes, aerated water, automobiles, coal and other tobacco commodities.

Due to the Covid-19 pandemic and subsequent 68-day lockdown since March 25, GST collections fell sharply in April and continued to contract till August.

On August 27, the Centre gave states the choice of borrowing 97,000 crore (the shortfall resulting from GST implementation issues) without having to pay principal or interest, or the entire 2.35 lakh crore revenue deficit from the indirect tax (including that arising from the Covid-19 pandemic) projected for this fiscal year. The 97,000 crore amount was subsequently raised to 1.1 lakh crore on October 5. Seven states are still opposing the Centre’s proposal and are demanding full compensation of 2.35 lakh crore under the first option.

MS Mani, a partner at consulting firm Deloitte India, said: “With the increase in GST collections for the past two months and an expectation of robust collections in the next few months, the collections deficit is expected to be lower – both in respect of GST and in respect of compensation cess. This could potentially reduce the borrowing plans of the states. The easing of revenue pressures may also enable a renewed focus on the policy agenda by the GST Council.”

Archit Gupta, founder and CEO of the financial technology platform ClearTax, said: “Judging from the overall growth rate of the past three months, it looks like the economy is on the road to recovery, and one can expect to see a marginal increase month-on-month over the next few months of the financial year.”

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Thursday, December 02, 2021