GST collection dips sharply in Maharashtra, Haryana; deficit worries mount

This will impact finances of the two states in FY20, especially when the share of states in corporation taxes will fall due to corporation tax cuts

The people of Maharashtra and Haryana will cast their vote on Monday, to elect a new legislative assembly. Little do they know that states they belong to have suffered the most among all states in terms of goods and services tax (GST) collection this year.

The state GST (SGST) collection of the two states in June 2019 was the lowest ever recorded (second lowest ever for Haryana). This includes Integrated GST (IGST) settlement. 

While Maharashtra collected Rs 5,706 crore in June 2019, never seen since inception, Haryana collected Rs 1,032 crore in June, higher than Rs 985 collected in August 2017 (first month of GST collection), but lower than any month thereafter. The latter has shown some improvement in the most recent quarter (July-September). 

This will impact finances of the two states in FY20, especially when the share of states in corporation taxes (collected by Centre) will fall due to corporation tax cuts. The two states have already budgeted for larger revenue deficit for FY20. 

Government officials suggested that changes in the way IGST is getting settled to Centre and states is the reason behind this. 

In 2018-19, states received more IGST from ad-hoc settlement than they actually deserved. In 2019-20, re-adjustments are being done to counter those excess transfers, and some money went back to IGST account from states, and subsequently to the Centre. 

This reduced the IGST settlement to many states (not all), and Maharashtra and Haryana seem to have been hit. 

IGST settlement to the Centre was less than what it should have been in FY19, hence the adjustment in FY20, a senior government official said. 

Real growth in the economy (gross domestic product) fell to a six-year low in the quarter ending June, at 5 per cent over the same quarter of the previous year. In nominal price terms, the economy grew at 8 per cent. 

But GST revenue growth, which should actually follow the trend in nominal growth, seems to have fallen substantially.