Assessing possible causes of shortfall in GST revenues and its implications

Prof Sacchidananda Mukherjee of NIPFP writes a useful paper on GST.

He says there is a possibility of shortfall in revenues from GST based on budget accounts. This could have wider implications:

a) Upto June 2022, revenues of states under GST are protected. So far there will be no impact on State Finances on account of Own Tax Revenue collection. However, if the GST revenue shortfall continues, Union Government will face fiscal stress and it will spillover to state finances in terms of lower tax devolution and grantsin-aid transfers.

b) The estimated shortfall in GST collection is Rs. 197,210 crore or 8.77 percent of Gross Tax revenue in 2018-19. If the share of states in central transfers (on account of tax devolution and grants-in-aids) remains unchanged at 55.4 percent of GTR, the expected fall in central transfers would be Rs. 109,254 Crore in 2018-19.

If states do not increase their revenue mobilization, they may require containing their expenditures to meet the FRBM targets. There may be demands from States to give relief from the FRBM targets, so that they could continue with present level of expenditures. It may build up public debt and may cause stress on state finances in future.


It also discusses the impact on State Finance after GST Compensation Period is over..

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