With some states facing revenue shortfall even after 10 months of GST rollout, Chief Economic Adviser Arvind Subramanian has been tasked with suggesting ways for laggard states to shore up their tax mop-up.
The GST Council in its May 4 meeting had identified five states, including Punjab and Bihar, which face the maximum revenue shortfall following the implementation of the indirect tax regime from July 1, 2017. Tax officers from Punjab and Bihar are likely to meet Subramanian next week, followed by a meeting with Chhattisgarh officers, an official said.
“The GST Council in its last meeting has tasked the Chief Economic Adviser to meet the states which are suffering revenue shortfall post GST implementation to understand the reasons and suggest corrective action,” the official told wire agency PTI.
As per official data based on revenue collection till Feb. 2018, 11 states were facing the maximum revenue shortfall, with shortfall in Bihar and Punjab at more than 40 percent. For Himachal Pradesh, the shortfall stood at 50 percent, while for Uttarakhand and Chhattisgarh the shortfall was around 40 percent and 30 percent, respectively.
While Odisha faced a shortfall of 30 percent, it was 28 percent for Madhya Pradesh and 20 percent for Assam. Besides, Jharkhand, Tripura, Jammu & Kashmir and Puducherry had suffered a revenue gap of over 20 percent.
As per the data, states like Gujarat, Tamil Nadu, Telangana, Andhra Pradesh, West Bengal, and UT Delhi suffered the least shortfall in GST revenue (below 20 percent) compared to monthly revenue to be protected till February.
AMRG & Associates Partner Rajat Mohan said low GST collections may lead to high fiscal deficit for states and hence tax and non-tax resources available exclusively to states’ authorities might be tapped.
Tax avenues which may be tapped include stamp duties, registration fees, property taxes and state excise duties. Also, focus could be more on non-tax revenues which include services in the form of state educational institutions, sports facilities, electricity distribution, water supply and sanitation services.Rajat Mohan, Partner, AMRG & Associates
EY Partner Abhishek Jain said concrete reasons for the shortfall in state revenues need a detailed analysis. “Some of the possible reasons could be lower purchasing power of these states [GST revenue being collected by the consumption state], impact of rate change on products with the earlier VAT rates being higher than the SGST component currently, and laxity in tax compliances,” Jain said.
In 2017-18, the Centre had released Rs 41,147 crore to states as GST compensation to ensure that the revenue of the states is protected at the level of 14 percent over the base year tax collection in 2015-16.
The revenue gap of each state is coming down since July and the average revenue gap of all states for last financial year was around 17 percent, according to the finance ministry.
Under GST, a cess is levied on luxury, demerit and sin goods over and above the highest tax rate of 28 percent and the proceeds are utilised to compensate states for revenue loss.