The indirect tax system, Goods and Services Tax (GST) is likely to see ‘pause’ in rate reduction now as revenue shortfall in first quarter is estimated to be Rs 43000 crore.

“It is a matter of concern (revenue shortfall),” a senior Government official said here on Saturday while adding “The sense is that we should adopt the RBI way of pause.” It clearly indicates that the GST Council may not consider rate cuts in near term. This remark has come at a time when the Council in its 28th meeting on July 21 lowered rates on nearly 100 products including smaller TV, fridge and washing machine beside handloom & handicraft products.

The official also mentioned that rates have been lowered on almost 33 per cent of goods and services since GST rates finalised. Though, this is expected to lead to higher volume and in turn higher revenue in future, but for the time being there is shortfall. Government estimates GST monthly collection to be in the range of Rs 1 to 1.12 lakh. However, in the first three months of the current figure, the collection has been between 94-96 thousand crore. Now reduction in duties on goods and services, there will be pressure on revenue collection.

Even Union Minister Arun Jaitley, in his social media blog on July 27, said that if the entire category of all the slabs is taken, the past one year has seen reduction of tax in 384 commodities with no increase on a single product. India has never witnessed such mass tax reduction since Independence. Lesser rates and higher collection is the result. Similarly in the services category, which has now become a part of the GST, on four different occasions 68 different categories of services have witnessed their rates reduced. The net revenue loss which Government have suffered on account of the reduction of tax on goods and services is about Rs.70,000 crores.

Centre also feels that revenue shortfall will put more pressure on its finances. This was elaborated by Jaitley, when he said, “Since State Governments have been guaranteed a 14 percent increase over their pre-GST revenues for the first five years, this burden has entirely been borne from the share of the Central Government.” Also, Centre is constitutionally obliged to share 42 per cent of its tax revenue with States.

Collection from GST is also critical from Centre’s fiscal deficit point of view. The deficit is estimated at 3.3 per cent of GDP. Now, if GST rate cuts impact overall revenue, then it will be tough for the Government to keep the deficit with budgeted level. The deficit has already touched 68.7 per cent of the budget estimate in the first three month of current fiscal.

comment COMMENT NOW