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Estimated GST shortfall could shrink after green shoots on revenue front

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The Rs 2.35 lakh crore estimated shortfall in Goods and Services Tax (GST) collections this financial year is expected to shrink significantly with the revenue mop-up seeing positive growth since September this year and the growth momentum is expected to continue in the remaining five months, two officials said.

Besides positive GST collections since September, numbers of states having negative year-on-year revenue growth have also reduced from 15 in September to seven in October, Union finance ministry officials said requesting anonymity.

A comparison of revenue data between September and October this year shows that numbers of territories having negative growth on annualised basis in October have reduced by over 50%.

“The trend, if sustained in the next five months, would reduce the gap between the protected revenue and actual revenue for FY-21 by about Rs 35,000 crore,” one of the officials said.

Overall GST collections that saw first positive annualised growth of 4% in September, after having plunged by 72% in March, posted over 10% YOY growth at Rs 1.05 lakh crore in October.

According to official data, 15 territories that posted negative growth in September compared to the same month last year were 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%), Telangana (-2%) and other territory (-16%). Apart from that the annualised growth in revenue collections in three states – Uttar Pradesh, Maharashtra and Ladakh (because the union territory was created this financial year) – in September this year was stagnant.

In contract, the year-on-year revenue collections contracted only in seven territories in October this year – Chandigarh (-3%), Delhi (-8%), Sikkim (-5%), Daman and Diu (-91%), Lakshadweep (-55%), Andaman and Nicobar Islands (-42%) and other territory (-28%).

“It is expected that the collections in November onwards would be even better, which would not only reduce the estimated shortfall of Rs 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 state governments 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 hard lockdown since March 25, the GST collections fell sharply in April and remained in negative territory until August this year. On August 27, the Centre had given states the choice of borrowing Rs 97,000 crore (the shortfall resulting from GST implementation issues) without having to pay principal or interest, or the entire Rs 2.35 lakh crore revenue deficit from the indirect tax (including that arising from the Covid-19 pandemic) projected for this fiscal year. The Rs. 97,000 crore was subsequently raised to Rs.1.1 lakh crore on October 5. Seven states are still opposing the Centre’s proposal and demand full compensation of Rs 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 chief executive officer 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.

It is plausible that the government may revise the Rs. 2.35 lakh crore shortfall in the coming months, based on the actual figures of the GST collections,” he said.

Lohit Soundarajan

Founder , Editor Tech Guy #Voxguy

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