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 the laggard states to shore up their tax mop-up.
The GST council in its May 4 meeting had identified about 5 states, including Punjab and Bihar, which face maximum revenue shortfall after 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 (on May 4) has tasked the chief economic adviser to meet the states that are suffering revenue shortfall post GST implementation to understand the reasons and suggest corrective action,” he said.
As per official data based on revenue collection till February 2018, 11 states were facing maximum revenue shortfall, with shortage in Bihar and Punjab at over 40 per cent. The same for Himachal Pradesh was as high as 50 per cent, while for Uttarakhand and Chhattisgarh the shortfall was around 40 per cent and 30 per cent, respectively.
While Odisha faced a shortfall of 30 per cent, it was 28 per cent for MP and 20 per cent for Assam. Besides, Jharkhand, Tripura, Jammu & Kashmir and Puducherry had suffered a revenue gap of over 20 per cent.
As per the data, states like Gujarat, Tamil Nadu, Telangana, Andhra Pradesh, Bengal, and Delhi suffered the least shortfall in GST revenue (below 20 per cent) compared to monthly revenue to be protected till February.
AMRG & Associates partner Rajat Mohan said low GST collections might 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,” Mohan said.
EY partner Abhishek Jain said concrete reasons for 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 earlier VAT rates being higher than current SGST component, 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 their revenue is protected at the level of 14 per cent over the base year tax collection in FY16.
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 per cent, 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 per cent and the proceeds are used to compensate states for revenue loss.