ZT WEB DESK
Srinagar: Faced with a big decline in revenues due to Covid-19 pandemic and the overall economic slowdown, the Good and Services Tax (GST) Council on Friday agreed to hold a one-agenda meeting in July to discuss the ways to bridge the compensation fund shortfall, including borrowing from the market, to ensure states’ revenue is protected at the agreed-on growth rate of 14% per annum.
The council would weigh the pros and cons of market borrowing, as well as to get into the nitty-gritty of such a mechanism and its legal tenability.
Interestingly, Jammu & Kashmir’s further market borrowings could be tricky considering its existing debt situation.
A study conducted by the National Institute of Public Finance & Policy (NIPFP), while reflecting on J&K’s fiscal deficit situation, has observed that the former state’s market borrowings had already gone beyond prescribed limits and that its fiscal deficit had well gone past 3 per cent limit of GSDP prescribed for all states.
The document, a copy of which is in possession of Ziraat Times, warns that if J&K continues with its current trend of borrowings and high expenditure on public salaries, the state’s fiscal deficit would be around 11.96% of GSDP by 2024-25. It also projected a massive 26 percent increase in J&K’s liabilities by that time.
In the Council meeting, the Centre gave a presentation to states on the challenges being faced on the GST revenue front and on the ways to address the issues.
An official said that gross GST revenue collections in the first two months of the current fiscal were just about 45% of the target. For the current fiscal, the gross GST revenue target (as per Centre’s budget estimate and states’ protected revenue) is Rs 1.21 lakh crore/month.
GST collections on a gross basis in FY20 grew just 3.8% annually to Rs 12.2 lakh crore. The compensation cess fund proved to be grossly inadequate in the year. This is likely to be a bigger problem in the current fiscal year as states’ protected revenue is higher at Rs 63,720 crore per month from Rs 55,900 crore in FY20.
Addressing the media after the Council’s 40th session held via video conferencing, Sitharaman explained that the recent release of Rs 36,400 crore as compensation for the November-February period of last fiscal was enabled by the Centre addressing from its end the issue of re-distribution required of the funds accumulated in I-GST pool, prior to formula-based automatic sharing of the I-GST funds began among the Centre and states. Last week, in a move that surprised states, the Centre released pending compensation payments for the November-February period of last fiscal.
Prior to this, the total compensation paid for the first eleven months of last fiscal was over Rs 1.5 lakh crore while collections via designated cesses were just Rs 95,000 crore. The Central government has mobilised excess compensation funds from previous fiscal years (FY18 and FY 19) to bridge the gap to an extent.
Collections are seen to have nosedived in April owing to the Covid-19 lockdown, before showing a marginal improvement in May and a more pronounced one in June. Gross collections had come in at Rs 97,597 crore in March, which was 8.4% lower than the corresponding month last year, as revenue from domestic and import transactions slumped and fewer taxpayers filed returns compared to previous months. Also, the Centre’s own collections for the financial year FY20 missed even the revised estimate (RE) by Rs 20,747 crore or 3.4% at Rs 5.92 lakh crore.
E-way bill generation on GSTN portal fell to less than 3 lakh-day in April, showing how badly the GST collections were hit by the lockdown. In the first week of June, daily e-way bills count rose to an average of 12.5 lakh, but it was still much lower than 16 lakh per day in June 2019.