GST shortfall

January 3, 2019

GST shortfall

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GST shortfall-As the tax collections remain below target, it may be time to recalibrate expectations

Revenue collections from the Goods and Services Tax (GST) are going too far off the mark for comfort.
Inflows declined for the second consecutive month in December to Rs.94,726 crore from Rs.97,637 crore in November and Rs.1,00,710 crore in the month before.
Now in order to achieve the year-end target, GST collections over the next three months will have to reach an average of Rs.1,34,900 crore.
Separately, as the government looks to woo traders and small businesses back to its electoral fold, the Council is considering a relaxation in the GST norms for micro, small and medium enterprises by raising the annual sales threshold for compulsory GST registration from Rs.20 lakh to over Rs.50 lakh.
Such a relaxation, along with regulatory steps like greater forbearance for small business loans, will boost sentiment among such firms, but it will further dent the tax kitty.
Other revenue heads, including direct tax or disinvestment receipts (even via innovatively structured intra-public-sector deals), are unlikely to be adequate to plug the GST shortfall.
This poses a challenge for the Centre at a time when it would have been hoping to announce some populist measures ahead of elections, while retaining its macro-economic management credentials.
States’ revenue collections under the GST regime have been uneven and a GST Council panel is examining inter-State variations.
But the Centre is bound to compensate States for revenue shortfalls for the first five years of the GST regime.
Unless the Centre decides to drop its fiscal deficit goals, a squeeze on spending, including planned capital expenditure, may be the only option.
There is a more problematic aspect to the dip in GST collections, based on economic activity and compliance trends in November.
India’s growth fell to 7.1% in the second quarter of this fiscal, an uptick in private investment over the same period was considered a sign of revival.
But if consumers are not confident enough to spend, a consumption-led investment revival to take the economy to an 8% growth path seems elusive again.