Sitharaman to meet state FMs today: Steps to boost GST revenue on agenda : 04-12-2019

Given that a shortfall in Goods and Service Tax (GST) collections is threatening to upset the budget maths of both the Centre and states and the former has even started defaulting on paying the constitutionally guaranteed compensation amounts to the latter, the GST Council’s next session on December 18 might see hikes in tax rates on a host of items and a pruning of the 156-strong list of exempt items.

Besides, the compensation cess, now levied on all the 34 items in the highest tax bracket of 28%, could be hiked and may also be imposed on a clutch of items in the lower slabs.

The Council might also formulate alternatives to compensate states as the source fund has proved to be inadequate. However, the GST slabs as such might not see a revision at this juncture, as this requires a comprehensive policy review.

Since the GST’s July 2017 launch, there have been several rounds of rate cuts, acceding to the demands from specific industries and in conformity with the government’s intent to boost consumption.

This is despite the fact that GST rates to start with were generally lower than the combined incidence of Central and state levies on most items.

It is seen that the Centre GST (CGST) revenue for FY20 might be about Rs 30,000 crore lower than Rs 5.28 lakh crore estimated in the Budget. Also, the compensation kitty might fall considerably short, when it comes to meeting the collection estimate of Rs 55,900 crore/month required to meet the assured annual SGST growth of 14% . Given the SGST collections in April-November period, compensation requirement for the period is nearly Rs 69,000 crore while the cess proceeds were only Rs 64,500 crore. This deficit is likely to get worse over the rest of the fiscal.

The GST Council wrote to state GST commissioners on November 27: “…lower GST and compensation cess collections have been a matter of concern in the last few months. The compensation requirements have increased significantly and are unlikely to be met from the compensation cess being collected.” It also sought the states’ inputs on review of tax/cess rates and list of exemptions.

Finance ministers of five states — West Bengal, Kerala, Punjab and Rajasthan and Delhi — recently raised an alarm over the delayed compensation payment from the Centre for the August-September period, and claimed that they were facing acute fiscal pressures as a result. “A delegation of state FMs will meet Union FM tomorrow morning to discuss GST Compensation dispute,” Kerala finance minister Thomas Isaac tweeted on Tuesday. He had tweeted on Sunday: “GST Council must be convened at the earliest to discuss Compensation Payment dispute between Centre and States. Central government has defaulted on the payment. Law says that Compensation must be paid in bi-monthly installments. Today we enter the fourth month without payment”.

While the Centre disbursed over Rs 47,000 crore in compensation to states for the April-July period, the bimonthly payment for August and September, which traditionally happens in the subsequent month, has been delayed.

Although states tacitly acknowledge that the guaranteed growth is steep specially when the economy is facing a consumption slump, they refused to buy into the suggestion of Finance Commission to pare it down.

After the GST revenue collection fell short by nearly Rs 1.5 lakh crore from the budget estimate last fiscal, the Union government in its budget this fiscal kept a rather conservative growth projection of only 1%.

After two months of contraction, GST revenue grew 6% in November 2019 (concerning mostly October transactions), to report the third-largest monthly mop-up of Rs 1.03 lakh crore since the tax’s launch in July 2017. A pick-up in consumption during the festive season seems to have contributed to the increase in mop-up, rather than any incipient economic recovery.

GST mop-up in October — concerning mostly September transactions — came in at Rs 95,380 crore, 5.29% lower than in the year-ago month. The September GST collections were just Rs 91,916 crore, a 19-month low and 2.7% lower than the year-ago month.

While technically the Centre has the option of dipping into the Consolidated Fund of India to make good the cess shortfall, it is unlikely to do so, given the fiscal constraints. According to officials, the law doesn’t prohibit levying the cess on items other than those in the 28% slab.

Earlier, the Council had set up a group of ministers and a committee of officers to suggest revenue augmentation measures.

Source : Times of India