Improve revenue buoyancy, Finance Commission chairman asks states

Fifteenth Finance Commission (FFC) Chairman N K Singh on Friday asked states to consider restructuring goods and services tax (GST) compensation, amid growing concerns over the Centre’s revenue collection. States were told to explore ways to shore up revenues and recommended considering hiking rates on certain items. Singh is also learnt to have asked states whether the current revenue assumption of 14 per cent growth in compensation from the Centre was unrealistically high.

GST collection has significantly slowed down in recent months, making it difficult for the Centre to hand out compensation to states.

“The FFC chairman was of the view that the Council had only been focusing on cutting rates while there was scope to hike them on some items. He asked for ways to improve revenue buoyancy,” said a government official.

Some states demanded an extension to the compensation cess period by another three years, till 2024-25.  

The commission is in the process of finalising its report by November. 

Till the commission’s report is submitted, not many changes are expected in the GST rate or structure, said Assam Finance minister Himanta Biswa Sarma.

The Centre is not in favour of extending the duration of compensation to states, citing a weak revenue situation. 

Incidentally, cess collections under the GST to compensate states for the revenue loss have fallen short of requirements in the first five months of the current financial year on account of a slowdown in demand. Compensation cess is levied on a few items in the 28 per cent GST slab, such as automobiles, cigarettes, and aerated drinks.

The final call on the matter will have to be taken by the GST Council, which comprises the Union and states finance ministers.

There is a shortfall of around Rs 24,000 crore between the GST compensation cess collected till August and compensation disbursed to states to meet the revenue shortfall.