India: Government expects INR400bn GST shortfall

  • The government is expecting a shortfall of around INR400bn in the GST collections over what has been budgeted for 2019-20. This could put pressure on the compensation that states are eligible for in case the tax growth falls below 14% during 2019.
  • A state finance minister said the Centre had informed the GST Council, which met in Goa on 20 Sep 19, about the expected shortfall at a time when economic growth has slowed down. Most states were, however, optimistic that the government will find a way to meet the compensation requirements, otherwise they may be forced to borrow from the market.
  • As part of the GST bargain, the Centre had agreed to compensate states for five years, if the annual increase in revenues was less than 14%. Under the GST law, payment of compensation only flows from a fund where the cess is collected. The Centre has estimated a collection of INR1tr cess on sin and luxury goods in 2019-20 or about INR80bn a month. The collection in Aug 19 was INR72.72bn, triggering possibility of a lower than budgeted collection. In the first four months of 2019, the Centre has released INR457bn as compensation to states. The states are also demanding that the compensation period be extended by another three years. The government has said it expects revenues to rebound when growth picks up in the coming quarters and is also hopeful of robust GST collection.

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