Finance Ministry to engage with States to shore up GST revenue

The Finance Ministry is formulating a strategy to shore up tax revenues and engaging with States to understand the issues obstructing their collections. This step was taken after the Centre had to pay nearly a fourfold increased GST compensation to the States from June- July.

Finance Secretary Hasmukh Adhia has begun meeting the GST officers from both Central and State tax departments, in the Capitals. This initiative is taken to analyze the issues affecting GST collections.

There has been a rapid increase in the bi-monthly GST compensation paid to the States by the Centre.

According to a target set by the finance ministry, monthly GST collections must be Rs 1 lakh crore for this fiscal, but the reality mop up has fallen short of the target month after month. It was in the month of April that the numbers exceeded Rs 1 lakh crore. The collections stood at Rs 94,016 crore in May, Rs 95,610 crore in June, Rs 96,483 crore in July and Rs 93,960 crore in August. The Centre had agreed to compensate the states for revenue loss on account of GST execution for a period of five years.

A total of Rs 14,930 Crore was paid to the States to compensate for the revenue losses incurred in June and July which is nearly four times more than the Rs 3,899 Crore revenue paid for the months of April and May.

In a statement to PTI, an official said “A strategy is to be devised to shore up GST revenues. The amount of compensation to be paid to each State varies every month and there is no set pattern”. The official added that in one of the state, there was huge outgo on account of VAT due to a court verdict. So the reason for this increased compensation is different in every State. 

The loss of revenue to a state is calculated based on the difference between the actual realization to a state under GST regime and the tax revenue it would have got under the old indirect tax regime after considering a 14 per cent increase over the base year of 2015-16. 

According to the Finance Minister, Arun Jaitley, the revenue gap of each state is lowering since July and the average revenue gap of all states for last financial year was recorded to be around 17 percent. Under GST, a cess is charged on luxury, demerit and sin goods over and above the highest tax rate of 28 percent and the profits are utilized to recompense states for revenue loss. On an average, almost Rs 8,000 crore is collected every month from this cess.

States in Talks

A discussion has already been initiated in four states to shore up revenues. These states include- Punjab, Himachal Pradesh and Jammu & Kashmir. It will further be executed in Bihar and Uttarakhand next month.

The officials said that one of the ways that are being thought upon is to consider raising anti-evasion measures with a focus on 30 taxpayers.