Revenue considerations are set to play a big role at the meeting of the Goods and Services Tax (GST) Council on Friday with many States expected to raise concerns about muted tax growth. Sources have indicated that the poor collections under the indirect tax levy are a source of concern for both the Centre and a number of states like Kerala, West Bengal and Delhi. “A number of states are likely to flag concerns about revenue losses and muted growth trends. Another round of reduction in GST rates could further impact the Exchequer and the bigger worry is that this could potentially be the second year of subdued GST collections,” said a person familiar with the development. GST mop-up fell to less than ₹1 lakh crore and was at ₹98,202 crore in August and indications are that the trend is likely to continue with the slowdown. The government had been hopeful that with stabilisation of the indirect tax revenue system and improved compliance, collections should have actually risen to about ₹1.20 lakh crore per month this fiscal.
The Budget 2019-20 has pegged the full year GST collections at ₹6.63 lakh crore, which is a tad lower than the Interim Budget target of ₹7.61 lakh crore. There are already concerns emerging amongst experts on whether this target will be met. “There is expectation of a revenue shortfall under GST. The Budget estimates are ambitious and with the investment and financial slowdown, the collections are expected to be lower,” said DK Pant, Chief Economist, India Ratings. Analysts believe that at the current rate of collections, monthly mop-up will have to reach about ₹1.18 lakh crore to meet the Budget target. States are concerned that another round of GST rate cuts could further impact collections with losses estimated at about ₹45,000-50,000 crore. Bihar’s deputy Chief Minister Sushil Kumar Modi recently said that most States are not in favour of further duty cuts for auto companies. Kerala Finance Minister Thomas Isaac had said in a tweet earlier this month: “It is not high GST rate that has caused auto crisis. Pre-GST combined tax, excluding service tax, ranged between 32 percent and 54 percent. Now, tax including compensation cess ranges from 29 percent to 46 percent only. If the Centre is keen to reduce it further, abolish cess. The rate would come down to 28 percent.”