GST: State governments face huge revenue shortfall

    NEW DELHI/LUCKNOW: Uttar Pradesh government has spent over Rs 12,000 crore in paying salaries and pension for April, when its revenues were Rs 2,284 crore. “It is shocking, but the state cannot compromise with the lives of the people,” UP finance minister Suresh Khanna told TOI, reacting to the low tax revenue.

    It’s a similar story in Punjab, where wage and pension bill added up to Rs 3,000 crore in April and there was an equal amount spent on debt servicing, while total earnings were Rs 200-250 crore. “Not a single bottle of alcohol was sold and there is virtually no petrol or diesel sales. We earned around Rs 10 crore a day from stamp duty and registration, which is not there, and consumption being what it is, is leading to almost nil GST. But there are higher spending requirements from relief & rehabilitation and medical departments,” Punjab finance minister Manpreet Badal told TOI.

    The state is staring at a Rs 8,000-9000 crore shortfall in the first three months of 2020-21 and even if things normalise, revenues would be around Rs 20,000 crore lower than what Punjab had expected in the remaining nine months. Faced with a severe cash crunch, the state government has front-loaded its borrowing and is tapping investors to raise money now, instead August or September. The story is similar across states.

    By all accounts, GST collections for March sales, which are due to be paid by Tuesday, may be just around 30% of the year-ago period when they were estimated at around Rs 1.14 lakh crore.

    Apart from GST and a share of the Centre’s tax kitty, the main contributors to the state’s revenue include value-added tax (VAT) on fuel, state excise on liquor, property tax, and tax on vehicles. On all fronts, tax revenues have virtually come to a halt, prompting several states to open liquor vends in the hope of raising some excise to keep the administration running.

    “With lower tax collections, the devolution to states would be lower by almost Rs 1.8-2 lakh crore compared to the FY21 Budget estimates. States’ own taxes, which accounted for around 44% of states’ total receipts (and amounted to Rs 12 lakh crore) in FY19, could also see an adverse impact of up to 10%. While states’ receipts would be lower by at least Rs 3-3.5 lakh crore than otherwise, higher spending would lead to expansion in their deficit, and therefore, the need to borrow more,” Motilal Oswal analysts Nikhil Gupta and Yaswi Agarwal said.

    While states have demanded that their borrowing limit be raised by allowing them to go past the prescribed fiscal deficit of 3% of GDP to up to 5% of GDP, they are awaiting clarity from the Centre to amend their laws. On their part, officials at the Centre said, the RBI has allowed states to raise more funds through ways and means advances, which are short-term borrowings, apart from releasing money in the form of devolution of central taxes and revenue deficit grants, to keep the states going. But states and analysts say it is not enough.

    Source- Times of India.

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