Estimated GST shortfall likely to shrink after growth in revenue

The ₹2.35 lakh crore estimated shortfall in Goods and Services Tax (GST) collections in 2020-21 is anticipated to shrink by nearly 15% with income seeing positive progress since September and the momentum anticipated to proceed within the remaining 5 months of the monetary yr, two finance ministry officers stated.

Overall GST collections that noticed their positive progress (this monetary yr) of 4% in September, after having plunged by 72% in March, posted a year-on-year progress of over 10% in October, once they crossed ₹1.05 lakh crore. The October quantity added to the raft of fine information concerning the economic system, together with automobile gross sales and a robust Purchase Manager’s Index rating, a sign of a choose up in manufacturing exercise.

Besides positive GST collections since September, the variety of states having a year-on-year decline in income has decreased from 15 in September to seven in October, the officers added on situation 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 many officers stated.

According to official knowledge, 15 areas that noticed a fall in income in September 2020 in comparison with the identical month final yr included Chandigarh (10% drop in GST income), 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 progress in income collections in Uttar Pradesh and Maharashtra was stagnant.

The year-on-year income collections contracted solely in seven areas in October this yr, together with 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 stated.

At the time of introducing the brand new oblique tax regime, the GST regulation assured states a 14% enhance of their annual tax income for 5 years ending June 30, 2022 and the Centre dedicated to satisfy any shortfall in income by means of the cess levied on luxurious items and sin merchandise reminiscent of liquor, cigarettes, aerated water, vehicles, coal and different 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 until August.

On August 27, the Centre gave states the selection of borrowing ₹97,000 crore (the shortfall ensuing from GST implementation points) with out having to pay principal or curiosity, or your complete ₹2.35 lakh crore income deficit from the oblique tax (together with that arising from the Covid-19 pandemic) projected for this fiscal yr. The ₹97,000 crore quantity was subsequently raised to ₹1.1 lakh crore on October 5. Seven states are nonetheless opposing the Centre’s proposal and are demanding full compensation of ₹2.35 lakh crore beneath the primary choice.

MS Mani, a companion at consulting agency Deloitte India, stated: “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 monetary expertise platform ClearTax, stated: “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.”