The GST Council meets to concentrate on compensation for shortfalls

The main consideration at the 43rd meeting of the Goods and Services Tax (GST) Council on Friday will likely focus on an acceptable mechanism to reimburse states for an estimate £Lost revenue of 1.5 lakh crore in 2021-22 due to the second wave of the Covid-19 pandemic.

States, especially those ruled by non-BJP and non-NDA parties, are alarmed at over 60% drop in e-way bills this month ( £28.2 million as of May 23) from a peak of £71.2 million in March 2021, when normal business activities were almost completely resumed after the first wave, said at least four federal and state officials on condition of anonymity.

A sharp drop in e-way bills indicates a drop in sales. “The significant decrease in e-way invoices, which reflect the movement of goods, as well as the slowdown in services, aviation, hospitality, entertainment, etc. will impact GST collections for April and May transactions,” said MS Mani. Senior Director at Deloitte India said.

One of the officials who works for a state government said: “The remuneration obligation in this fiscal year is expected to be exceeded £1.5 lakh crore if economy doesn’t recover from Covid-19 by next quarter. “In a letter to the Union’s finance minister, Nirmala Sitharaman, the West Bengali finance minister, Amit Mitra, estimated the shortfall in the current financial year £1,56,164 crore “excluding the effects of Covid Wave-2,” HT reported on May 14.

The 2021-22 budget came at a time when cases were the lowest and when it looked like India wasn’t having a second wave of the pandemic £1 lakh crore, but the actual collection will be much less, added the first official. The budget estimate (BE) for collecting compensation levies in fiscal year 21 was £1,10,500 crore, but it was cropped £84,100 crore in the revised estimate (RE).

The second wave forced most states to impose bans, although manufacturing activities continue unabated in many countries, and some experts say there could be a third wave of the pandemic. An exact estimate of the GST revenue shortfall is therefore not yet possible, said a federal government official. “The subject could be discussed on Friday. The views of the state governments are heard. However, if the decline in sales is not properly assessed, a final decision on this matter cannot be made immediately, ”added the official.

Officials from the Union Treasury Department did not respond to an email request on the matter. The Union Finance Minister is the chairman of the GST Council, in which States / UT are represented by finance ministers. The council meets after a break of more than seven months.

The GST Act assures states that their annual sales will increase by 14% for five years from July 1, 2020, and also guarantees that any loss of income from compensation for luxury goods as well as sin and luxury products will be compensated for. “Several states believe that it is the responsibility of the center to reimburse states for the insured GST revenue. Therefore, they would like the center to borrow to fill the revenue gap,” added the second official.

In the previous fiscal year, GST sales fell by roughly one decrease due to the first wave £2.35 lakh crore. The center granted two credit options to states, facilitated by a special window from the Reserve Bank of India (RBI). The first was to borrow the GST shortfall from £1.10 lakh crore and repayment of principal and interest from the indemnity levy. In the second case, only the principal amount from the compensation would be paid. After some resistance from 10 opposition-ruled states, they all finally accepted the first option. “The agreement was only for fiscal year 21. The GST Council will rethink and approve a mechanism to offset any loss of revenue in the current fiscal year,” said the second person.

According to Archit Gupta, founder and chief executive officer (CEO) of the financial technology platform ClearTax, the lockdown was not as severe during the second wave compared to the first wave when economic activity came to an almost complete halt. “So we don’t expect a major decline in GST collections. But business declining services, hotels, travel and automobiles could all impact GST collections unless there is a major resuscitation in the short term and vaccines spike, ”he said. “Since GST is a transaction-based tax, the decline in economic activity due to the recent lockdowns will certainly have a detrimental impact on the GST collections,” added Mani.