GST shortfall and what govt needs to do

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Goods and Services Tax (GST) collection in October declined 5.3% year-on-year, to Rs 95,380 crore, because of the slowdown in consumption. Overall GST collections in April-October 2019 increased 3.4% year-on-year. The government has a target of at least Rs 1 lakh crore in GST collection every month to meet its revenue estimates. This pushes up the required run rate for the rest of FY20 to Rs 1.34 lakh crore per month.

A report by Kotak Institutional Equities Research says that at the current run rate, the government could see a shortfall of around Rs 90,000 crore in CGST and IGST and Rs 1.3 lakh crore in SGST collections for this financial year. The pressure on the government’s revenues is mounting since, apart from the shortfall in GST collections, both income tax, and corporation tax collections remain weak. Moreover, in September, the government had cut corporate tax rates for all domestic companies by almost 10 percentage points to boost investments and economic growth. The tax cut will cost the exchequer Rs 1.45 lakh crore annually. Also, falling nominal GDP growth in the economy will have implications for tax buoyancy.

While GST collections in November are likely to improve because of festive demand aided by a lending push by banks, buoyancy in GST collection is unlikely to sustain unless there is a quick pickup in economic growth. The economy grew 5% in the three months to June, the slowest in 25 quarters, and the high-frequency indicators are showing no signs of improvement in the subsequent months. Gross tax revenues in H1HY20 have grown at a dismal 1.5%, with 5.2% growth indirect taxes and a decline of 2.2% in indirect taxes.

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