New Delhi: The Central government is projecting a shortfall of around Rs 40,000 crore in the Goods and Service Tax (GST) collections over what has been estimated in Union Budget 2019-20, as per media reports. While this deficit indicates the poor implementation of GST, this could put pressure on states’ compensation at a time of economic slowdown.
According to the GST law, the Centre will compensate states for five years till 2021-22, if the annual revenue growth rate is less than 14%. This compensation will be paid from a fund where the cess is collected. While, the government estimated a collection of Rs 1 lakh crore cess on sin and luxury goods in 2019-20 or about Rs 8,000 crore a month, the collection in August was recorded at Rs 7,272 crore.
The cess is levied on goods in the 28% GST slab, such as automobiles, cigarettes and aerated drinks.
On the other side, states are demanding that the GST Council extend the compensation period to another five years. Reportedly, the 15th Finance Commission is likely to submit its recommendations on this matter. On Friday, at the GST Council meeting held in Goa, the Commission told state finance ministers that the states’ tax base had come down because of successive rounds of GST rate cuts.
Data indicate that the compensation given to states has been increasing every year. The Ministry of Finance told Parliament that the compensation released to states and Union territories had gone up to Rs 81,177 crore in 2018-19 from Rs 48,178 crore in 2017-18. This figure is expected to further increase this year. Reportedly, during April-July 2019, Rs 45,784 crore has already been paid as compensation to states.
But, the Centre is not in favour of extending the duration of compensation to states, it is learnt.
The total gross GST revenue collected in July 2019 increased by 5.8% to Rs 1.2 lakh crore against Rs 96,483 crore collected in the same month last year.
The total gross GST collected was Rs 7,40,650 crore during 2017-18 and Rs 11,77,369 crore in 2018-19. But, even in this two-year period, the government has failed to meet the budgetary targets.