Alarmed by a nearly four-fold rise in GST compensation to states for June-July, the Finance Ministry is crafting a strategy to shore up tax revenues and engaging with states to identify issues hindering their collections.
Finance Secretary Hasmukh Adhia has started meeting with GST officers, both from central and state tax departments, in the state capitals to understand issues plaguing the GST collections. There has been a spike in the bi-monthly GST compensation paid to the states by the Centre.
The Centre paid Rs 14,930 crore to compensate states for revenue loss incurred in June and July, a nearly four-fold jump compared to Rs 3,899 crore paid for the months of April and May.
“A strategy is to be devised to shore up GST revenues. The amount of compensation to be paid to each state varies every month and there is no set pattern,” an official said.
The reason for increased compensation also varied from state to state. For instance, in one of the cases, a state saw a huge outgo on account of VAT refund following a court verdict, the official added.
A discussion to shore up revenues has already happened with four states — Punjab, Himachal Pradesh, Puducherry and Jammu & Kashmir, while a dialogue with Bihar and Uttarakhand is slated to take place later this month.
The official said that one of the options being considered is stepping up anti-evasion measures with a focus on top 30 taxpayers, but added that the Centre will ensure that the fix to the problem will not be intrusive on businesses. “Data analytics will be put to use to examine the profile of top 30 taxpayers to study their tax payment pre and post GST implementation,” the official added.
The Finance Ministry has targeted monthly GST collections to be Rs 1 lakh crore for this fiscal, but the actual mop up has fallen short of the target month after month. The sole exception was the month of April in which the numbers exceeded Rs 1 lakh crore. The collections stood at Rs 94,016 crore in May, Rs 95,610 crore in June, Rs 96,483 crore in July and Rs 93,960 crore in August.
The Centre had agreed to compensate the states for revenue loss on account of GST implementation for a period of five years.
The loss of revenue to a state is calculated based on the difference between the actual realisation to a state under GST regime and the tax revenue it would have got under the old indirect tax regime after considering a 14 per cent increase over the base year of 2015-16.
In 2017-18, the Centre had released Rs 41,147 crore to the states as GST compensation to ensure that the revenue of the states is protected at the level of 14 per cent over the base year tax collection in 2015-16. The revenue gap of each state is coming down since July and the average revenue gap of all states for last financial year was around 17 per cent, according to the finance ministry.
Under GST, a cess is levied on luxury, demerit and sin goods over and above the highest tax rate of 28 per cent and the proceeds are utilised to compensate states for revenue loss. On an average, about Rs 8,000 crore is collected every month from this cess.
Source :  The Free Press Journal