Tax cuts to impact revenue collection of States, says RBI report

Surabhi Mumbai | Updated on October 08, 2019 Published on October 03, 2019

RBI report says tax cuts will impact revenue collection of States.   -

RBI’s annual report gives comprehensive data on on the fiscal health of states


Revenue trends for States seem to be stabilising after initial volatility in the goods and services tax (GST) and now seem to be on the rise. However, a recent report by the Reserve Bank of India has said that except for a few states, the desired results from the new indirect tax levy are still elusive.

Increasing collections from the levy is also essential as the recent cuts in corporate tax and GST will boost investment but could also lead to a revenue loss for States this fiscal, the RBI report on State Finances: A Study of Budgets of 2019-20 noted.

Read more: Finance Minister unleashes corporate ‘animal spirits’

Also read: Hotel tariffs, outdoor catering get GST rate cuts

GST collections have already dipped to a 19-month low of ₹91,916 crore in September due to the current economic slowdown.

Related news: At ₹92,000 crore, GST mop-up in September dives to a 19-month low

The effective weighted GST rate is now at 11.6 per cent from 14.4 per cent when the tax system was launched, it noted. The indirect tax levy accounts for nearly 50 per cent of the revenue for States and about 37 per cent for the Centre.

“Barring a few states, however, the desired GST targets have proved elusive so far warranting compensation cess in the first two years of implementation,” the report said, adding that “concerted efforts must be taken to improve revenue by plugging loopholes and mitigating IT glitches.

Call to subsume alcohol and fuel levy

The report has also noted that the challenge is to subsume alcohol and petroleum dutied under GST while maintaining revenue neutrality as well as their importance in maintaining and rationalising States' debt.

 “Currently, alcohol and petroleum are still out of the purview of GST. For a majority of the states, however, the sales tax on petroleum forms about 15-20 per cent of own tax revenue, while excise duty on alcohol accounts for around 10-15 per cent..The challenge is to subsume these two major sources of revenue under GST while maintaining revenue neutrality, keeping in view its relevance to maintaining and rationalising states’ debt.”

The annual study is considered to be one of the most comprehensive reports on the fiscal health of States.

In 2017-18, when GST was introduced from July 1, collections from the tax amounted to 26.3 per cent of the States’ own revenue receipts, which rose to 35.3 per cent in the Revised Estimates for 2018-19 and just a notch lower at 35.4 per cent in the Budget estimates for the current fiscal year.

However, according to the report, the GST compensation cess has risen from 2.6 per cent in 2017-18 to 4.1 per cent in 2018-19 (RE) and is estimated to be at 4.5 per cent this fiscal.

Kerala Finance Minister Thomas Isaac had recently noted that the current low in GST collections is not only due to the economic slowdown but also the “mess in GST administration”. “What compliance can you expect when even the first annual return is yet to be filed? And also rates have been continuously slashed to less than revenue-neutral levels,” he said in a tweet.

Published on October 03, 2019

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.