In July, the GST Council had announced the biggest rate cut since last November and slashed the levy on several items. But an encore at the upcoming meeting of the GST Council appears highly unlikely at this juncture. A state finance minister told Mint that with GST revenue is yet to stabilise, the scope for further rate cuts was limited. “Even if there is a rate cut in the September 28-29 meeting, it will be on insignificant items with very limited revenue repercussions,” he added.
While the Finance Ministry is targeting monthly GST collections at Rs 1 lakh crore for this fiscal on the back of anti-tax evasion measures like the e-way bill, the actual mop up has fallen short of the target month after month. The collections stood at Rs 94,016 crore in May, Rs 95,610 crore in June, Rs 96,483 crore in July and Rs 93,960 crore in August. The sole exception was the month of April, when the numbers exceeded the target courtesy spillover tax payments from the previous year.
As a result, the next meeting of the GST Council is unlikely to feature major rate cuts to accommodate demands from the micro, small and medium enterprises (MSMEs). The daily added that the central government is also reaching out to states to understand the reasons behind the dip in collections – finance secretary Hasmukh Adhia is touring states like Uttarakhand, Himachal Pradesh and Bihar, which have reported a major shortfall in revenues.
The government’s concern is understandable, given that the Centre has agreed to compensate the states for revenue loss on account of GST implementation for a period of five years. The loss of revenue to a state is calculated based on the difference between the actual realisation to a state under GST regime and the tax revenue it would have got under the old indirect tax regime after considering a 14% increase over the base year of 2015-16.
According to FinMin, in the last fiscal, the average revenue gap of all states was around 17%. In terms of absolute numbers, Karnataka received the highest amount of compensation from the central government in 2017-18 of Rs 7,535 crore for revenue shortfall in the GST regime, followed by Punjab (Rs 4,618 crore), Gujarat(Rs 4,277 crore) and Maharashtra (Rs 3,077 crore). To be sure, Gujarat and Maharashtra have now recovered most of these losses.
“In the case of economically strong states, although the compensation received may be higher in absolute numbers, the revenue shortfall as a percentage of state tax receipts may not be high,” a member of the GST Council told the daily. Punjab, for example, lost receipts from the pre-GST era tax on procurement of agriculture goods, which has been subsumed into GST.
The upcoming festive season may prove to be a silver lining for GST collections assuming the recent tax rate cuts will drive volume growth in consumer goods sales. A central government official told the daily that there is an expectation that revenue will pick up in the festive season as consumer demand increases. “But one will have to wait and see by how much collections increase,” he added.