States moving closer to monthly GST mop-up targets; here's who stands where

The shortfall in state revenues from the goods and services tax (GST) is declining, shows the data shared with states at the GST Council meetings.

The average monthly shortfall in state revenues from the state GST (SGST) and settlement on account of the Integrated GST (IGST) declined from 28.3 per cent of the monthly target in August 2017 to 23.7 in per cent in February 2018. 

The decline continued thereafter. As a result, by June 2018, the average monthly shortfall over the entire period from August 2017 to June 2018 was estimated to be 13 per cent of the average monthly target.

This trend stands in contrast to concerns over central government’s GST collections. 

The target for each state is based on the revenues that should flow to the state so that it does not need to be compensated for any loss in revenues from GST through the compensation cess. 

Business Standard reviewed data and trends in revenue collection shared with finance ministers and tax commissioners of state governments over several GST council meetings. 

State collection patterns 

Since GST was rolled out there has not been much clarity over how different states have fared. The Centre does not regularly put out state-wise GST collections. At times this has been made public in response to questions in the Parliament. The finance ministry in response to RTI queries has asked applicants to demand the data directly from each state. There is also little clarity over the total revenues flowing to states under the new indirect tax regime as states had not provided details about their tax collections in a consistent manner. This was also highlighted by the Reserve Bank of India in its report on states finances. 

The data shows, starting August 2017, when GST collections began, up to June 2018, states faced an average monthly revenue gap of Rs 59.86 billion — a 13 per cent shortfall over the average monthly target revenue of Rs 446.20 billion that the Centre has committed to protect through the compensation cess.

The five states with the highest shortfall in percentage terms over this period are Puducherry followed by Himachal Pradesh, Uttarakhand, Punjab, and Jammu and Kashmir. On the other hand, Manipur, Mizoram and Arunachal Pradesh have collected more than the targeted revenue for this period. 

In absolute terms Karnataka and Punjab have fared the worst so far. As against a monthly target of Rs 40.64 billion on average, Karnataka has faced an average deficit of Rs 8.29 billion. Punjab had a target, on average, of Rs 16.27 billion per month but has suffered an average shortfall of Rs 5.80 billion per month.

Analysis of the GST data for some months of 2017-18 presented in the council showed that Uttarakhand, Haryana, Maharashtra and Gujarat had the least share of settlement revenue as a percentage of total revenue. This implies that these states either export a large proportion of products manufactured in the state or are not dependent on other states for consumption.

On the other hand, Arunachal Pradesh, Mizoram, Nagaland, Jammu and Kashmir and Bihar had the largest percentage of revenue received through settlement as compared to their total revenue. This implies that a large percentage of consumption in these states is from products which are imported from other states.

These trends are corroborated by a recent study presented in August by the then additional chief secretary finance of Madhya Pradesh, A P Shrivastava.

States such as Karnataka and Punjab have suffered huge shortfalls while Maharashtra has only a 2 per cent monthly deficit. Mineral-rich states such as Chhattisgarh and Jharkhand also have high shortfalls. And while Uttar Pradesh has only a shortfall of 8 per cent, Bihar has a shortfall of 32 per cent

This data shared in the GST council also provides an insight into the state-wise tax revenues that were subsumed from the previous indirect tax regime into the GST system. These state specific numbers were not available so far. 

In his report, the former chief economic advisor had presented the aggregate state indirect tax revenue that was subsumed under the GST pegging it at Rs 3.69 trillion for 2013-14. But the report did not provide state wise estimates. 

The aggregate state number was derived by adjusting the methodology that economists at the National Institute of Public Finance and Policy (NIPFP) followed in their study for the empowered committee of state finance ministers. This study had estimated the state-wise revenue that was to be compensated under the GST. It also calculated the state-specific goods and services tax base separately. 

The calculations were complex for many reasons. For one, the state wise services tax base needed to be estimated. Second, input-output tables were used to understand the how the input of services flows into different goods and services. Third, the MCA database which forms the basis of some of the calculations does not differentiate between a firm’s revenues from manufacturing and services. This also has a bearing on the way the country’s GDP is calculated. 

But for now, neither has this data, which is shared with state governments, been made public nor have the underlying calculations that were carried out to set tax targets for states.