GST Council to meet on Friday to discuss revenue shortfall

The second wave of Covid-19 infections in the country has forced many states to impose lockdowns, leading to a fall in revenue generated from the Goods and Services Tax(GST)

After a spot of seven months, the 43rd meeting of the GST Council are survived Friday. Creating a mechanism to compensate the states for a revenue shortfall of about Rs 1.5 lakh crore during this twelvemonth are going to be a key priority at the meeting. The council comprises of Union Finance Minister(FM) Nirmala Sitharaman and therefore the FM’s of all 28 states.

The second wave of Covid-19 infections within the country has forced many countries to impose lockdowns, resulting in a fall in revenue generated from the products and Services Tax(GST). While manufacturing units are allowed to work in many nations, a 60 per cent fall has been witnessed within the e-way bills within the month of May(Rs 28.2 million as of May 23) which reflects a decline within the movement of products. This decline, plus deceleration within the service, aviation, hospitality and entertainment industries will impact GST collections in April and will, in line with MS Mani, senior director at Deloitte India.

Amit Mitra, government minister of state has written a letter to Union FM Nirmala Sitharaman, estimating the revenue shortfall in 2021-22 to be at Rs 1,56,164 crore “without taking into consideration the impact of Covid wave 2”.

It is worth noting that the Union Budget of this year had estimated total compensation cess receipts at Rs 1 lakh crore. However, the particular collection is probably going to be much lower, considering that the estimates were made at a time when a second wave of Covid-19 wasn’t anticipated. Last year, when the revenue shortfall was about Rs 2.35 lakh crore, the Centre had given two options to states- either to borrow the GST shortfall of Rs 1.10 lakh crore and repay principal and interest from the compensation cess or to only pay the principal from the compensation cess. However, “the arrangement was just for FY 21,” said a government official.

Archit Gupta, founder and CEO of fintech platform ClearTax believes that the second lockdown isn’t as strict because the first one.”Therefore we aren’t expecting an outsized visit GST collections.” But considering the decline faced by businesses in services, hotels, travel and auto sectors, he does think GST collections will get affected unless vaccinations acquire pace and demand revives suddenly.

The GST law, which came into effect on Dominion Day, 2017, assures the states a 14 per cent increase in annual revenue for five years from legal holiday, 2020, failing which they’d be compensated from the compensation cess levied on sin and luxury products. “Several states are of view that it’s the responsibility of the Centre to compensate states for the assured GST revenue, hence they’d just like the Centre to borrow to satisfy the revenue gap,” said another government official.

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