Punjab sees shortfall in assured GST revenues widening to 60% in FY22

“I shudder to think the position for Punjab next year with a likely deficit of 60% from assured compensation,” Badal wrote as concerns mount on states ahead of end of five year protection to GST revenues in June 2022.

Punjab, which was seeing GST revenue shortfall of close to 50% of the assured revenue, fears that its shortfall will further widen to 60% in FY22, the state’s finance minister Manpreet Singh Badal has said in a letter to union finance minister Nirmala Sitharaman ahead of the GST Council meeting on Friday.

“I shudder to think the position for Punjab next year with a likely deficit of 60% from assured compensation,” Badal wrote as concerns mount on states ahead of end of five year protection to GST revenues in June 2022.

In previous years, practically all states continued to face revenue deficits of close to 20% of the assured revenue. In the case of Punjab, this was in excess of 50%, he said. “Certainly, GST has failed to garner the assured revenue threatening the fiscal sovereignty of states. We need to start discussions on how exactly this gap is to be bridged in general together with the possibility of differential SGST rates for states which continue to have far greater deficits,” Badal said.

Assured 14% annual growth in GST revenues have helped the states including Punjab tide over stress on revenues in the last four years despite own taxes not performing that well.

Badal said discussions in the GST Council should take place on floor and band of rates within which states might be allowed to fix their respective SGST rates after June 2022 (when the five year protection to assured annual growth in revenues is scheduled to end). States, especially, those ruled b opposition parties, have been demanding the compensation for shortfall in GST to continue beyond June 2022.

“I had sincerely believed that the period of 5 years — which provided assured compensation — will ensure a stabilised and vibrant GST. Everyone was assured that GST will raise GDP, boost revenues and have a catalytic impact on even non-GST revenues. None of this has even remotely happened. On the other hand, the trajectory has been in opposite direction,” he said.

Badal has suggested to harmonise tax rates and exemptions so that opportunities of evasions are eliminated and tax credit chain simplified.

On Wednesday, a group of ministers (GoM), led by Odisha finance minister Niranjan Pujari, was set up to examine the feasibility of levying GST on products such as pan masala and gutkha on the basis of the installed manufacturing capacity, rather than production to check tax evasion.

For FY22, Icra projects all states’ GST collections to be Rs 6.1 lakh crore, trailing the protected revenues of Rs 8.7 lakh crore. This will entail GST compensation requirement of Rs 2.65 lakh crore, of which about Rs 1 lakh crore will be mobilized through compensation cess, while the remaining Rs 1.65 lakh crore may be met through back-to-back loans as was done in FY21.

Besides compensation for GST revenue shortfall, the Friday’s GST Council meeting will discuss on reducing GST rates on Covid-related medical items including vaccines and oxygen concentrators.