The government embraced for GST cess shortfall of an estimated Rs 63000 crores. The economic slowdown is revealing its effects in revenue collections of the government.
GST Cess Shortfall
A recent GST Council meeting concluded that the government will face a shortfall of Rs 63000 crores in GST cess for FY 2020 as revenue has slowed down due to prevailing fiscal dynamics in the country. The GST cess collections are estimated at Rs 96,800 crores whereas states require compensation cess of Rs 1.6 lakh crore for the current fiscal year at 5% growth rate. The requirement has almost doubled from the previous year’s requirement of Rs 69,275 crores. The center had already paid ₹ 65,250 crores to states and UT’s between April to October. It released the second payment of ₹35,298 crore just before the GST Council meeting.
The GST collections summed up to Rs 95,380 crore in October as against Rs 97,637 crore in November 2018. According to reports, out of gross GST collections of Rs 1,03,492 crore in November, only Rs 7,727 crore was compensation cess.
GST Cess
The implementation of GST resulted in the inclusion of the State’s levy into a new levy, decreasing their revenue sources. For this, States were promised to be paid for five years under guaranteed mechanism through Compensation Cess which is levied on five products falling under the category of 28%. The Centre will pay the State in case the revenue growth is less than 14%. The compensation is to be paid every two months but the shortage has led in delay since August.
Future Projections
The GST council meeting held on 18 December noted two other possible indications of GST growth rate and resulting shortage. If the GST growth rate increases to 8% then the shortfall can reach ₹ 1.08-lakh crore during 2020-21 and over ₹ 1.63-lakh in the following years. In the case of 10%, shortfall is projected at Rs 96,360 crore and ₹ 1.36-lakh crore during 2020-21 and 2021-22. Besides, ICRA projected a shortage of Rs 2.2 lakh crore for all states.
In all, despite payments made to States, the government is still under pressure due to unexpectedly low GST revenue.