India: Revenue shortfall to limit scope of GST rationalisation in meeting next week

  • The rising gap between goods and services tax (GST) targets and actual revenue collections may limit the scope for large-scale rate cuts, with states favouring stabilization in revenues before any further rate reduction.
  • As a result, the next meeting of the GST Council on 28-29 Sep 18 is unlikely to feature major rate cuts to accommodate demands from the micro, small and medium enterprises (MSMEs).
  • The central government, concerned about the revenue shortfall, is also reaching out to states to understand the reasons behind it.
  • With anti-tax evasion measures like the e-way bill kicking in, tax authorities were targeting monthly GST revenues of INR1tr in FY19. The collections have not kept pace with these targets, except in Apr 18 and that too because of spillover tax payments from FY18.
  • The large-scale rate cuts on white goods effected in Jul 18 have led to a further fall in revenues in Aug 18. So far in FY19, the total shortfall in GST collections from targets was at INR165bn with the average monthly collection at INR967bn.
  • A state finance minister, who did not wish to be identified, said that with GST revenue is yet to stabilize, the scope for further rate cuts was limited. A central government official, who did not wish to be identified, said there is an expectation that revenue will pick up in the festive season as consumer demand increases.
  • Worried about the pace of growth of GST revenues, finance secretary Hasmukh Adhia is touring states like Uttarakhand, Himachal Pradesh and Bihar which have reported a major shortfall in revenues to understand the reasons for the revenue shortfall.

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