Centre keeps GST revenue target moderate for FY20

CRESTS AND TROUGHS OF TAX COLLECTION ~1-trn hole in GST in FY19 chips away states’ share in devolved taxes

Despite a shortfall of ~1 trillion in the expected central goods and services tax (CGST) collection in 2018-19 (FY19), the Centre is aiming for an ambitious 18 per cent growth in the overall GST mop-up in 2019-20 (FY20).

The government is eyeing similar growth in income tax, corporation tax and customs revenue in FY20. Overall tax revenue growth is pegged at 14 per cent.

This is in contrast with how well the government was able to meet its Budget Estimates in the current year. Its Revised Estimates of gross tax collection fell 1 per cent short of the budgeted target, mainly due to the CGST shortfall.

However, the Centre has lesser worries than the states in this bargain. States’ share in the centre’s tax revenue, which was budgeted at ~7.88 trillion, fell 3.4 per cent to ~7.6 trillion in the Revised Estimates. As a result, the Centre’s net tax revenue (gross minus states’ share) remained at the nearbudgeted level of ~14.8 trillion.

The direct tax collection in FY19 (RE) is set to exceed the budget target by ~50,000 crore entirely due to enhanced corporation tax revenue. The Revised Estimates of personal income tax is kept at the budgeted level.

Revenues from excise — particularly levied on petrol and diesel — have remained static in the Revised Estimates of FY19 as well as in the budget estimate of FY20, despite the fact that consumption of these fuels tends to rise every year.

Despite the under-achievement in the goods and services tax (GST), Finance Minister Piyush Goyal was appreciative of the government’s efforts.

“I think one should appreciate that this government has consistently gone to the GST Council and reduced the GST rates on hundreds of items. We are ensuring 14 per cent growth to states’ revenues from the GST kitty to the states. It is almost 50 per cent growth over three years, which has never happened before in indirect tax collection,” he said in a post-Budget media interaction.

Defending the shortfall, Goyal said the average monthly tax collection was ~97,100 crore per month as compared to ~89,700 crore per month in the first year of the GST. So far in FY19, the total GST collection by the Centre and states stood at over ~9.71 trillion, against the target of ~12.5 trillion.

The Budget documents show that the Centre’s gross tax revenues (pre- devolution to states) are projected to fall 1 per cent short of their target in FY19, and have been revised downward from ~22.7 trillion to ~22.5 trillion. The key reason is the shortfall in the CGST collection.

Against an expectation of ~6.04 trillion from the CGST, the Centre could garner only ~5.04 trillion.

Now, the CGST is a component of the divisible pool of tax revenue, 42 per cent of which is shared with states. Thus, the burden of the CGST shortfall will be borne by both the Centre and states.

This was partially compensated by corporation taxes, which have been revised upwards by ~50,000 crore, and by revenue from basic customs duties, which have been revised upwards by ~19,000 crore. Experts think that a dip in devolution to states could impact the finances of states, pushing up their fiscal deficit and market borrowing for FY19.

“The reduction in states’ share in devolved taxes suggests that the deficit in revenue has been in heads which are in the divisible pool of taxes, and the incremental jump in revenue has been in heads which are categorised as cess or surcharge,” said Pinaki Chakraborty, professor of economics at the National Institute of Public Finance and Policy.

Goyal said the GST has resulted in an increased tax base, higher collections, and ease of trade, adding that with the introduction of the GST, inter-state movement of goods has become faster, more efficient, and hassle free with no entry tax, check posts, and truck queues.

Pratik Jain, partner and leader, indirect tax, PwC India, said, “It’s interesting to see that a growth of around 20 per cent has been projected on CGST collections in FY20 over the current year, whereas overall growth in collection in FY19 has been around 8 per cent over FY18. Achieving this ambitious growth target would call for substantial expansion in tax base, requiring stringent measures to plug the tax leakages.”