GST meet to revolve around deficit
The key deliberation at the 43rd meeting of the goods and services tax (GST) Council on Friday will likely revolve around an acceptable mechanism to compensate states for an estimated ₹1.5 lakh crore revenue shortfall in 2021-22 due to the second wave of Covid-19 pandemic, people aware of the matter said.
States, particularly those ruled by non-bjp and non-nda parties, are alarmed by an over 60% fall in e-way bills this month (₹2.8 crore as on May 23) from a peak of ₹7.1 crore in March 2021, when normal business activities had resumed almost in their entirety after the first wave, at least four officials from the federal government and states said on condition of anonymity.
A sharp fall in e-way bills indicates a contraction in revenue. “The significant decline in the e-way bills which reflect movement of goods, accompanied by the deceleration in the services sector, aviation, hospitality, entertainment, etc, will have an impact on GST collections for transactions in April and May,” MS Mani, senior director at Deloitte India said.
One of the officials, who works for a state government, said, “Compensation requirement this fiscal year is expected to cross ₹1.5 lakh crore if the economy doesn’t recover from the spell of Covid-19 by the next quarter.” In a letter to Union finance minister Nirmala Sitharaman, West Bengal finance minister Amit Mitra estimated the shortfall in the current financial year at ₹1,56,164 crore “without taking into consideration the impact of Covid wave-2”, HT reported.
Budget for FY2021-22, presented at a time when cases were at their lowest, and when it looked like India would not have a second wave of the pandemic, estimated total compensation cess receipts at ₹1 lakh crore, but the actual collection will be much less than that, added the first official. The budget estimate (BE) for compensation cess collection in FY21 was ₹1,10,500 crore, but it was trimmed to ₹84,100 crore in the revised estimate (RE).
The second wave has forced most states to impose lockdowns, although manufacturing activities continue unabated in many, and some experts say there could be a third wave as well. Hence, any accurate estimation of GST revenue shortfall is not yet possible, a federal government official said. “The issue could be discussed on Friday. Views of state governments will be heard. But a final decision on this matter is not possible immediately without correct estimation of the revenue shortfall,” the official added.