GST collections may show negative growth into September, says GIFT study

Vinson Kurian Thiruvananthapuram | Updated on April 30, 2020 Published on April 30, 2020

File photo

Goods and Services Tax (GST) collections may likely witness a slow or even negative growth rate for at least six months from March due to the impact on Covid-19 on manufacture, business and consumption. An analysis of different scenarios reveal that GST revenue for the past 30 months has been uneven, volatile, indolent and far below official targets, point out KJ Joseph, N Ramalingam and L Anitha Kumary, faculty at the Gulati Institute of Finance and Taxation (GIFT), a think-tank in Thiruvananthapuram.

They said in a co-authored paper titled ‘GST Revenue of India and Kerala: Lessons from 30 months; Data and Suggestions to the 15th Finance Commission’ that the state of Kerala, known for its high consumption and heavily dependent upon other states for goods and services, expected more revenue from GST. But the experience from July 2017 till date has been less than assuring.

Negative growth in Kerala

For the state, 19 out of the 30 months saw negative trends while the upward growth in the rest 11 reveals high volatility, due largely to receipt of ad hoc settlements. The inconsistent collection of revenue, coupled with the uneven IGST remittances and ad hoc amounts, have forced it to constantly depend on Ways and Means sources of funds for meeting monthly, regular and committed expenditure.

The Centre has to compensate the states based on the year-on-year standard growth rate (14 per cent) fixed as per Sections 3 & 4 of the GST (Compensation to States) Act, 2017. The percentage share of CGST and SGST has been increasing whereas the percentage shares of IGST and compensation are decreasing. The decreasing share of compensation cess on the total revenue may not mean adequate balance amount in the cess account, the paper says.

Insufficient balance

Average release of compensation to states per month has increased from ₹4,571.78 crore during 2017-18 to ₹15,062.25 crore during 2019-20. The balance available in the cess account (₹5,774 crore) is sufficient to pay only one-third of a month’s obligation to the states. This will become even lesser in January-March 2020 and for the next couple of years due to the impact of Covid-19.

Decline, both in SGST and IGST, coincided mainly with the two-time revision in GST rates of the high elastic goods from 28 per cent to 18 per cent, the paper notes. In order to maintain the targeted 14 per cent growth rate, the combined reduction in SGST and IGST components is sought to be filled by compensation that rose from 14.7 per cent in 2017-18 (nine months) to 40.7 per cent in 2019-20 (10 month). This means that Kerala may end up demanding even more compensation in the coming months.

Streamline tax governance

The authors put forth a series of recommendations to the 15th Finance Commission, including (i) streamlining tax governance and compliance procedure that demands minimum effort to submit return and remit tax, (ii) apportionment of IGST revenue to the states on a monthly or by-monthly basis, (iii) a review of exemptions, concessions and tax benefits to minimise tax distortion and revenue leakage, (iv) a separate ‘State GST revenue gap grant’ for funding states to implement welfare schemes, and (v) amendment of the GST Compensation to States Act 2017 by extending the compensation deadline from 2022 to 2027 or beyond due to Covid-19 impact.

Published on April 30, 2020

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!


Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.