GST aid for states: Revenue secretary Tarun Bajaj says boosting revenue better than cess route

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July 02, 2021 2:15 AM

To boost GST revenues, the GST Council might deliberate on rectifying the inverted duty structure, use of technology for better compliance (GST collections have been over Rs 1 lakh crore in the past eight consecutive months partly reflecting better compliance).

“I think all these measures, inverted duty structures, tax rates….will be debated and discussed in the GST council meeting,” Bajaj said.“I think all these measures, inverted duty structures, tax rates….will be debated and discussed in the GST council meeting,” Bajaj said.

Ahead of the special Goods and Service Tax (GST) Council meeting, likely in late July or early August, to discuss revenue shortfall compensation mechanism for states beyond June 2022, Union revenue secretary Tarun Bajaj on Thursday indicated that dependence on cess or borrowing to bridge the shortfall might not be the right way forward.

“(It is up to) the GST Council to debate as to how to ensure that states are compensated by greater revenues, rather than (via) borrowings or continuing with the cesses indefinitely. So, we will have to think out of the box,” Bajaj told CNBC TV18. It will take 2-3 years to repay the Rs 1.1 lakh crore already borrowed in back-to-back loans in FY21 and another Rs 1.6 lakh crore to be borrowed in FY22, to compensate states for the shortfall in assured GST revenues. These loans are to be repaid via cess proceeds. The cesses on demerit goods are being used for compensating states for revenue shortfall against the guaranteed annual growth of 14%.

Speaking about the GST collections, Bajaj said June mop-up (for May transactions) would be ‘reasonable’ and ‘respectable’ despite disruption in economic activities due to Covid-induced lock-down. Conservative estimate is that monthly numbers could improve to 1.15-1.25 lakh crore in the coming months.

Despite spending control measures imposed on many ministries, he said the overall revenues, spending and fiscal deficit numbers planned for FY22 were likely to be adhered to. “…over a period of time, you will see that the expenditure will definitely go up,” he added.

Opposition-ruled state governments are determined to drive a hard bargain at the next GST Council meet to decide whether and how a compensation mechanism for the ‘revenue shortfall’ will be extended beyond June 2022.

While the cess collections were enough to meet GST compensation requirement, Covid-19 pandemic has dented the revenues collections in FY21 and a shortfall against guaranteed level is seen in FY22 too. States reckon that the actual shortfall during the five years to June 2022 is much higher than estimated by the Centre at Rs 3.9 lakh crore or thereabouts (Rs 1.8 lakh crore in FY21 and Rs 2.1 lakh crore in FY22). West Bengal finance minister Amit Mitra recently wrote a letter to Union finance minister Nirmala Sithraman that unpaid GST shortfall compensation to states is Rs 74,398 crore for FY21.

To boost GST revenues, the GST Council might deliberate on rectifying the inverted duty structure, use of technology for better compliance (GST collections have been over Rs 1 lakh crore in the past eight consecutive months partly reflecting better compliance).

“I think all these measures, inverted duty structures, tax rates….will be debated and discussed in the GST council meeting,” Bajaj said.

Talking about the decision on Wednesday to curb spending by about 20% of the quarterly budget of a large number of departments, the secretary said the government is simultaneously spending more on infrastructure, healthcare (free vaccines may cost Rs 50,000-60,000 crore as against Budget allocation of Rs 35,000 crore), free foods for the poor (Rs 94,000 crore) and higher subsidy on fertilisers (to cost an additional Rs 15,000 crore).

With tax revenues are likely to do better than budget targets, Bajaj said the department of investment and public asset management (DIPAM) is confident of achieving disinvestment target for FY22. Bank privatisation is also on track, he added.

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