At GST Council meeting today, J&K’s talking points: budget deficit, SGST burden

Ziraat Times Team Report

Srinagar: As GST Council is meeting today for the first time after the country-wide lockdown, Jammu & Kashmir administration is likely to raise two issues of its immediate concern: the budget deficit for 2020-21 due to a likely revenue shortfall and the shrinking base of the overall economic activities in the erstwhile state.

While businesses and industries across the country expect a GST rate cut to ease the pain of dwindling demand amid coronavirus pandemic, the government is expected to discuss measures related to GST revenue shortfall and states’ compensation.

J&K’s revenue collection projections are already off the mark this year, as the assumptions made for the budget process for 2020-21 are no more valid. According to sources in the Commercial Taxes Department, J&K is likely to have a revenue shortfall to the tune of 30% this year.

Likewise, there is likely to be a major shortfall in statutory central transfers, given that the central government is already experiencing a major dip in the central tax revenues. Moreover, the room for discretionary grants this year has squeezed like never before.

J&K’s own revenue base is unlikely to expand because economic activities in the former state are squeezing and a return to pre-August 2019 situation is very unlikely any time soon.

Due to longer lockdowns, near-total closure of services-related activities, subdued consumption and looming uncertain political environment Jammu & Kashmir, according to observers, has limited or no elbow room to raise more taxes through the State GST mechanism.

“Where are the economic activities to tax more? Whatever direct and indirect taxes are in place are already back-breaking for J&K’s businesses. On the contrary, J&K’s administration should push on cutting certain taxes and reduce its unproductive expenditure”, says Farooq Ahmed, an IT start-up based in Srinagar.

The borrowing route for J&K to fund the budget deficit is challenging too.

Significantly, a study conducted by the National Institute of Public Finance & Policy (NIPFP) on J&K’s fiscal deficit situation has observed that the former state had well gone past 3 per cent limit of GSDP prescribed on fiscal deficit for all states.

The document, a copy of which is with 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.

Meanwhile, FM Nirmala Sitharaman will address the media virtually at 12.45 pm.