Why in News?
The GST Council has written to states telling them that the compensation requirements are “unlikely to be met”.
What is GST Council?
- The GST Council is a constitutional body established under Article 279A of Indian Constitution
- It makes recommendations to the Union and State Government on issues related to Goods and Service Tax (GST).
- The GST Council is chaired by the Union Finance Minister.
- Its other members are the Union State Minister of Revenue or Finance and Ministers in-charge of Finance or Taxation of all the States.
- The 122nd Constitutional Amendment Bill, 2016 was passed in Parliament for introduction of Goods and Services tax in the country.
- Consequent upon this, the same was notified as the 101st Constitution Act, 2016.
What is there purpose of GST act?
- As per the GST Act, states are guaranteed compensation for any revenue shortfall below 14% growth for the first 5 years ending 2022.
- The compensation is calculated keeping the base year as 2015-16.
- GST compensation is paid every 2 months by the Centre to states.
What did the GST Council write to the states?
- It has written to states telling them that the GST and compensation cess collections in the last few months have become a “matter of concern”.
- It also said that the compensation requirements are “unlikely to be met”.
- The Council is now scheduled to meet on December 18 to focus on “revenue augmentation”.
- Some state finance ministers are scheduled to meet Union Finance Minister before the meet to discuss the GST compensation dispute.
Did the Centre delay before?
- The Centre has already delayed compensating states for the shortfall in GST revenues for August-September 2019.
- The payment for the above was due in October, 2019.
- At least five Opposition-ruled states/UTs had issued a joint statement in November raising concerns about this.
- As per the Union Finance Ministry data, the Centre had collected Rs 64,528 crore in compensation cess during April-November 2019.
- It paid out only Rs.45,744 crore for April-July period, leaving the remaining in its kitty assuming no payment has yet been made to states for August-September.
- The payments were held back to states in anticipation of the shortfall in collections and the resultant impact on the government’s fiscal deficit.
What did the Council requested the states?
- The GST Council has now asked states to give their inputs and proposals by December 6,2019 regarding,
- Review of items under exemption,
- GST and compensation cess rates on various items,
- Rate calibrations for inverted duty structure, compliance and revenue augmenting measures.
What are the concerns?
- Indirect tax regime - Cess is imposed only on luxury and sin goods under GST.
- So, any measure to generate more cess collections would either include imposing a higher cess on these items or a tinkering at the highest tax slab (28%) under the indirect tax regime.
- Direct tax regime - Besides faltering indirect tax collections, the mop-up on the direct tax front is also not optimistic, with gross collections during April-November growing a mere 5%.
- Net collections (less refunds) rose a meagre 0.7%, as against 2018’s 14% and the Budget target of 17.3%
- Corporate tax collections contracted 1% during April-November, while personal income tax grew 5%
- Net direct tax collections have posted low growth because of a sharp rise in refunds.
What is the impact of these concerns?
- The slowing stream of both direct and indirect tax collections poses a big challenge for the government to meet its tax receipt targets set in the Budget.
- Following the shortfall in direct tax revenue target for 2018-19, the government had reduced the tax targets for the current financial year.
- Direct tax revenue target has now been estimated at Rs 13.35 lakh crore for 2019-20, Rs 45,000 crore lower than the estimate of Rs 13.8 lakh crore in the Interim Budget presented in February, 2019.
Source: The Indian Express
