Q Will Centre have difficulty financing States' GST shortfall?
Q Will fiscal deficit be affected by GST?
---------------------------------------------
The overall monthly shortfall in States GST from August 2017 to June 2018 was 13% of Rs 44,600cr or Rs 5800cr, but this percentage is declining. States' shortfall is not a problem as GST compensation cess is above Rs 7000cr per month and stands in surplus after payouts to States (see below). A windfall GST revenue comes from unallocated "integrated GST". This should be zero but large amounts have accumulated due to unclaimed input tax. There are approx Rs 3000cr unresolved IGST claims from exporters, Rs 2000cr unpaid input tax credits, and Rs7000cr input tax claims awaiting final adjudication.
https://economictimes.indiatimes.com/news/economy/finance/finance-ministry-denies-exporters-rs-23000-crore-gst-refund-claims-are-stuck/articleshow/66190080.cms
A new legislation allows Centre & States to equally share the cess surplus and the unallocated IGST, so helping cash flows of Centre & States. Centre which is witnessing a shortfall of 20% or Rs 10,000cr/pm in its own GST collections, can now receive Rs 17,000cr from the cess surplus, till May 2018. Four trenches of IGST have benefited Centre by Rs 17,500cr (Feb), Rs 25,000cr (June), Rs 6,000cr (Aug) and 14,500cr (Sept).
https://www.businesstoday.in/current/economy-politics/centre-states-apportion-rs-29k-cr-igst-in-september/story/283234.html
Thus Centre would not lose sleep over compensating States but will worry about its own collections, which some feel will drive up the fiscal deficit. According to the October report (see below), collections will be stronger in remaining months, due to more registrations & filings, anti-avoidance measures and better implementation by States. Also, the festive season will see higher spending. With regard to the fiscal deficit, Govt has signalled lower market borrowings for remaining fiscal and suggests higher direct tax collections will compensate. (Rs 30,000cr higher direct tax is more than the fuel duty cut of Rs 1.5/litre, that comes to Rs 10,500cr in 1/2 year).
https://timesofindia.indiatimes.com/business/india-business/direct-tax-mopup-may-be-rs-30000-crore-higher-in-fy19/articleshow/66078720.cms
Data - compensation cess
--------------------------
From July to March 2018 (FY 18) : Rs 62,000cr (for 8 mo)
Compensation paid till March 2018 (FY 18) : Rs 48,000cr
Compensation cess till May 2018: Rs 86,000cr
Released to States: Rs 51,700cr (for 9 mo)
Surplus: Rs 34,300cr
https://www.financialexpress.com/economy/lok-sabha-approves-changes-gst-cess-surplus-can-now-be-shared/1277296/
Data - cumulative shortfall
-------------------------
August 2017- 28.3% (for July sales recorded in August)
February 2018- 23.7%
FY 2018- 17%
August- 13%
Oct 2018 report on GST
--------------------
Monthly compensation to States has been dropping sharply! Compared to an average of Rs 5300cr per month in FY 18, the monthly figure for the next 3 months (till July 2018) is just Rs 4500cr. It reasons that compliance was compromised in initial months (due to glitches in software & execution) and has improved in recent months due to more filers (which have expanded gradually). Further improvement in tax buoyancy is expected due to: 1) electronic-way bills 2) pressure for suppliers to join GST input chain 3) continuing growth of active filers 4) State govt will become more active in boosting revenue collections 5) GST collected at source (TCS) for e-commerce (see comments) 6) invoice matching in some form or other.
https://www.hindustantimes.com/india-news/gst-cheer-for-government-as-states-shortfall-drops/story-FrG7L1E1v1QS50xOG3l2kO.html
States exhibit wide variations. 5 NE states and AP have produced small surpluses. Maha & Gujarat have recovered most of the early losses. Delhi, TN, Kerala & Goa have increased the shortfall. Adverse impact in TN, Kerala & Goa is due to specific events, is understandable and less than 2%. Delhi which increased from 13% to 19%, is a cause for concern. Centre has sent teams to investigate the reasons for high shortfalls in states like HP, Uttarakhand, Bihar and Punjab.
Oct 2018 article on fiscal deficit
-------------------
"We should comfortably meet our fiscal deficit target," says FM Jaitley, though admitting Centre has a shortfall in GST collections. "We will hopefully close the gap during the festive season". There is a shortfall of Rs 16,500cr from April to August 2018 in CY. But the shortfall (which affects States & Centre) has narrowed from 16% till FY 18 to 13% till August.
https://www.livemint.com/Politics/GVzmoVcqs8fhYRi3INTlvO/Govt-may-miss-GST-collection-targets-for-this-fiscal-hints.html
Q Will fiscal deficit be affected by GST?
------------
The overall monthly shortfall in States GST from August 2017 to June 2018 was 13% of Rs 44,600cr or Rs 5800cr, but this percentage is declining. States' shortfall is not a problem as GST compensation cess is above Rs 7000cr per month and stands in surplus after payouts to States (see below). A windfall GST revenue comes from unallocated "integrated GST". This should be zero but large amounts have accumulated due to unclaimed input tax. There are approx Rs 3000cr unresolved IGST claims from exporters, Rs 2000cr unpaid input tax credits, and Rs7000cr input tax claims awaiting final adjudication.
https://economictimes.indiatimes.com/news/economy/finance/finance-ministry-denies-exporters-rs-23000-crore-gst-refund-claims-are-stuck/articleshow/66190080.cms
A new legislation allows Centre & States to equally share the cess surplus and the unallocated IGST, so helping cash flows of Centre & States. Centre which is witnessing a shortfall of 20% or Rs 10,000cr/pm in its own GST collections, can now receive Rs 17,000cr from the cess surplus, till May 2018. Four trenches of IGST have benefited Centre by Rs 17,500cr (Feb), Rs 25,000cr (June), Rs 6,000cr (Aug) and 14,500cr (Sept).
https://www.businesstoday.in/current/economy-politics/centre-states-apportion-rs-29k-cr-igst-in-september/story/283234.html
Thus Centre would not lose sleep over compensating States but will worry about its own collections, which some feel will drive up the fiscal deficit. According to the October report (see below), collections will be stronger in remaining months, due to more registrations & filings, anti-avoidance measures and better implementation by States. Also, the festive season will see higher spending. With regard to the fiscal deficit, Govt has signalled lower market borrowings for remaining fiscal and suggests higher direct tax collections will compensate. (Rs 30,000cr higher direct tax is more than the fuel duty cut of Rs 1.5/litre, that comes to Rs 10,500cr in 1/2 year).
https://timesofindia.indiatimes.com/business/india-business/direct-tax-mopup-may-be-rs-30000-crore-higher-in-fy19/articleshow/66078720.cms
Data - compensation cess
From July to March 2018 (FY 18) : Rs 62,000cr (for 8 mo)
Compensation paid till March 2018 (FY 18) : Rs 48,000cr
Compensation cess till May 2018: Rs 86,000cr
Released to States: Rs 51,700cr (for 9 mo)
Surplus: Rs 34,300cr
https://www.financialexpress.com/economy/lok-sabha-approves-changes-gst-cess-surplus-can-now-be-shared/1277296/
Data - cumulative shortfall
August 2017
February 2018
FY 2018
August
Oct 2018 report on GST
Monthly compensation to States has been dropping sharply! Compared to an average of Rs 5300cr per month in FY 18, the monthly figure for the next 3 months (till July 2018) is just Rs 4500cr. It reasons that compliance was compromised in initial months (due to glitches in software & execution) and has improved in recent months due to more filers (which have expanded gradually). Further improvement in tax buoyancy is expected due to: 1) electronic-way bills 2) pressure for suppliers to join GST input chain 3) continuing growth of active filers 4) State govt will become more active in boosting revenue collections 5) GST collected at source (TCS) for e-commerce (see comments) 6) invoice matching in some form or other.
https://www.hindustantimes.com/india-news/gst-cheer-for-government-as-states-shortfall-drops/story-FrG7L1E1v1QS50xOG3l2kO.html
States exhibit wide variations. 5 NE states and AP have produced small surpluses. Maha & Gujarat have recovered most of the early losses. Delhi, TN, Kerala & Goa have increased the shortfall. Adverse impact in TN, Kerala & Goa is due to specific events, is understandable and less than 2%. Delhi which increased from 13% to 19%, is a cause for concern. Centre has sent teams to investigate the reasons for high shortfalls in states like HP, Uttarakhand, Bihar and Punjab.
Oct 2018 article on fiscal deficit
"We should comfortably meet our fiscal deficit target," says FM Jaitley, though admitting Centre has a shortfall in GST collections. "We will hopefully close the gap during the festive season". There is a shortfall of Rs 16,500cr from April to August 2018 in CY. But the shortfall (which affects States & Centre) has narrowed from 16% till FY 18 to 13% till August.
https://www.livemint.com/Politics/GVzmoVcqs8fhYRi3INTlvO/Govt-may-miss-GST-collection-targets-for-this-fiscal-hints.html
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Shared publicly
- Explains why many feel Govt will fail to contain the fiscal deficit. It goes beyond Centre's inability to meet GST targets.
REPLY 23w - GST collection at source
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Why?
1. Identification of taxable sales
2. Earlier payment of GST
For e-commerce companies to start from 1st October 2018: Under the provision, a small 2% tax is retained out of sales proceeds of e-commerce vendors. This allows tax dept. to monitor transactions and counter under-reporting on e-commerce platforms.
For Govt depts & PSU companies: GST (or part of GST) shown on vendors' or contractors' invoices will be deducted and settled with GST dept.
REPLY 23w
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