GST Collections Fail To Reach Predicted Limit

Goods and Services Taxes, that had been struggling over the past quarters, have seen better days over the past two months. In December, collections rose by 8.9% year-on-year, the GST collected reached INR 1.03 lakh crore. However, it is still short of the targeted INR 1.1 lakh crore, as was expected of the last four months of this fiscal.

What does the shortfall in GST collections indicate?

Although domestic collections have seen a record growth of 16%, collections on imports saw an increasing dip of 13% and 10% in November and December, respectively. This indicates the worrisome notion that the demand for goods in the country has fallen considerably.

How will this shortfall affect the center and the states?

The biggest issue arising from the dip in GST collections is how it affects the states, as GST accounts for 60% of their revenues. As per the current guidelines, states with more than 14% shortfall are to be compensated by the center till the year 2022. However, there have been delays with compensation as dues from August have been cleared as late as mid-December. Meanwhile, many states, are falling even further behind in their targetted collections.

How is the government planning to handle this shortfall?

As the shortfall becomes more and more apparent, many revenue officers are recommending reevaluating GST slabs and rates to push the revenue. Although no hefty hike seems to be on the card, some seeping increases in rates can be expected.

Way Forward

Increasing tax rates or overcomplicating tax slabs may not be the answer here. GST in itself is a complicated mechanism that the Indian market is still warming up to. Moreover, higher tax rates have in the past shown a rise in tax evasion. Any changes to established systems take time to curb. But a hurried change cannot help the situation. Instead of taking the easy step out, the government must focus on curbing tax evasion while at the current tax structure. That alone will raise the revenues and hopefully, end the shortfall.

Topics: GS-III: Economic Growth Development