After falling GDP growth rate in the second, fifth consecutive quarter, questions have arisen as to whether it is a recession! Recent data released by the NSO regarding GDP has revealed that it has reached 4.5 percent in the second quarter (Q2) of the current financial year due to a decline in the country’s economic growth rate. In such a situation, the recent announcement made by the GST Council has deepened the possibility of another serious problem before the country. It is worth noting that in a letter written to the states on 27 November last month, the GST Council had expressed concern over the reduction in tax collection and also informed the states that the Central Government could possibly compensate for the loss from the implementation of GST Could not be able to do.
GST storage shortage
- The continuously declining GST collection has become a major challenge for the Finance Ministry, as the Central Government is unable to pay statutory compensation for the losses caused to the states.
- It is noteworthy that a few days ago, the Finance Ministers of the five states had issued a joint statement, opposing the central government for not fulfilling the things contained in the GST constitutional amendment.
- Looking at the statistics, between July 2017 and March 2019, only 8 times in total 21 months have been seen when GST collection has crossed Rs 1 lakh crore.
- It is noteworthy that in September this year, gross GST revenue reached Rs 91,916 crore, which was the lowest level of GST collection since February 2018. However, there was some increase in GST collection in October and November.
- But even then GST revenue is not enough to pay the states their compensation.
- It may be noted that the government had set a GST collection target of about Rs 636,63,343 crore for the current financial year 2019-20, but even after eight months in the current financial year, only 50 percent of it could be collected. is.
- On the other hand, the condition of collection of compensation cess is also not good. The government had set a target of collecting about Rs 1,09,343 crore as compensation cess in the current financial year, but till now only Rs 64,528 crore has been collected.
- Experts believe that the current state of the economy has had a considerable impact on GST collection, due to lack of confidence and fear neither investors are investing nor the demand for the economy is increasing which clearly has a significant impact on GST revenue. Falling on
- The historic Goods and Services Tax came into force on 1 July 2017. On July 1, 2018, this year was celebrated as GST day by the Government of India on completion of one year of implementation of GST.
- It is to be noted that GST is an indirect tax which has been implemented with the objective of making India a unified common market. It is a single tax on the supply of goods and services from the manufacturer to the consumers.
- It was enacted as the Constitution (101st Amendment) Act, 2016 after the President’s signature on 8 September 2016 after the ratification of the states.
- On 29 March 2017, four bills related to Goods and Services Tax were introduced in the Lok Sabha for consideration and passage.
- Central Goods and Services Tax Bill, 2017
- Integrated Goods and Services Tax, 2017
- The Union Territory Goods and Services Tax Bill, 2017
- The GST (Compensation of States) Bill, 2017
- All these bills were passed by Lok Sabha on 29 March 2017 and Rajya Sabha on 6 April 2017.
- The central government promised to compensate the states for any shortfall in tax revenue due to GST implementation for a period of five years. Significantly, this promise of the Center convinced a large number of reluctant states to sign the new indirect tax regime.
Provision of compensation to states
- According to the GST Act, compensation for states with less than 14 percent increase (base year 2015-16) in GST tax collection till the year 2022 (first five years) has been guaranteed. It is known that compensation is paid by the Center to the states every two months with compensation cess.
- Compensation cess is collected on the supply of a select few goods and services or both.
- The main purpose of this cess is to collect money to compensate the loss due to the states and hence it will be collected only till the year 2022.
- The Center has already delayed in giving compensation to the states due to reduction in GST revenue for August-September 2019, for which payment was to be made in October, 2019.
- On this subject, the Punjab government said that if the Center does not release the dues soon, it will take the matter to the Supreme Court.
Possible effects of this move
- The credibility of the Government of India on the economic promises has been badly defeated, but if the fiscal contracts between the state governments and the central government are not fulfilled now, the credibility of the government on all fronts will be completely lost and if India If the state governments can not rely on the public and constitutional commitment of the Center, then it will not be expected from any investor.
- At a time when there is volatility in the growth rate, the delay in payment of compensation to the states as per the GST Act guarantee will create a financial crisis for them.
- If there is an unexpected shortfall in the state’s finances, there will be a serious impact on goods and services and development at the primary level.
- Many analysts believe that this financial crisis is underscoring the inexactness of our reforms.
- State governments have been asked to share their views on issues like GST and compensation cess rates and measures to increase revenue. Significantly, these are likely to be discussed in the next meeting of the council.
- There is a need to adopt a long-term approach in which measures such as reducing the current number of items in the highest tax slab can be adopted. Also, the list of discounted items can also be shortened.
- Many experts are also suggesting measures like reducing the number of tax slabs.
- Apart from this, the GST Council should also focus on making filing easier to increase revenue.
You May Also Like Latest Post Gdp