Govt releases weekly installment of Rs 6,000 cr to states to meet GST shortfall
Since the implementation of GST in the tax system of India, the GST law aimed to provide a rise of 14% in the annual tax revenue collection for five years, and The Central Government committed to meeting any shortfall in the revenue through the cess levied on the luxurious goods and services such as liquor, cigarettes, aerated water, automobiles, coal, and other tobacco commodities, but in hindsight, the GST laws gave rise to noteworthy controversies created by the economists and the media;
Throughout the pandemic, there was an inclination towards the downfall in the economic sector, and the subsequent lockdown made it assertive that no production houses would be on due-course for uplifting any kinds of business, and after successive efforts, the Government, along with the suggestions of the Finance Ministry, they decided to avail the compensation amount by borrowing it through the special borrowing window at an interest rate of 4.74%, FurtherThe Finance ministry released its 14th installment of the weekly payment of Rs.6,000 crores to the states computing the total amount of fund released so far to ₹84,000 crores;
Till now, 3/4th of the GST compensation shortfall amount has been released to the states and the Union Territories, an amount of ₹76,616.16 crores has been released to 23 States and ₹7,383.84 crores to the three Union Territories with Legislative Assembly (Delhi, J&K, Puducherry)
The repercussions of the pandemic led to a decline in the GST collection system, estimated to be a handful of 2.35 Lakh crore rupees, which fell well short of the target focused in 2020-21;
The commencement of the financial year saw a throbbing crisis in the world, where the plunge was 72% in March, after the announcement of the nation-wide lockdown since 25 March, The GST computation was drastically affected, as it declined immensely in April, which proved to be a significant factor in the GST compensation collection regime.
The stagnation of the economic system contracted till August, and after observing the repetitive downfall, The Finance Ministry and the Central Government expressed their thought process and gave the states the choice of borrowing 97,000 crore rupees( The shortfall resulted from GST implementation issues) without any substantial principal or interest.
On August 27, the Centre gave states two choices of either borrowing ₹97,000 crores (the shortfall resulting from GST implementation issues) without having to pay principal or interest, or the entire ₹2.35 lakh crore revenue deficit from the indirect tax (including that arising from the Covid-19 pandemic) projected for this fiscal year. The ₹97,000 crore amount was subsequently raised to ₹1.1 lakh crore on October 5. The Center’s proposal is still being challenged and opposed by the seven states, and they are arduous about their claim of receiving the full amount of ₹2.35 lakh crore as compensation for the difficulty faced.
Whether the evaluation and the implementation of laws are in favor of the citizens of India is a matter of consideration on some other day but as of now, we would look into the implications and advantages of this scheme-
- As tax revenues are a subject of economic activity, the tax collection was adversely affected as almost 70% of the manufacturing industries were forced to shut down during the pandemic, due to which the concept of GST shortfall compensation makes utter sense, as the Central Government faced severe constraints in their finances.
- The procedure of borrowing the money looks to be reasonable, as providing states with money to spend is crucial in the road to recovery into the pre-pandemic world;
Lack of finances has caused an enormous impact on the hope of a revival from the bizarre misery caused during the pandemic, which has a severe consequence on the working of the economic system.
- According to surveys, the 15 regions that saw a decline in revenue in September 2020 as compared to the same month last year included Chandigarh (10% drop in GST revenue), Delhi (7%), Sikkim (49%), Arunachal Pradesh (20%), Manipur (19%), Mizoram (42%), Tripura (3%), Meghalaya (6%), Daman and Diu (83%), Karnataka (5%), Goa (23%), Lakshadweep (58%), Puducherry (1%), and Telangana (2%)
- The numbers added to the raft of good news from November 2020 onwards about the economy, including car sales and a strong Purchase Manager’s Index score, an indication of a pick up in manufacturing activity, the economy has stabilized itself into a positive one as the tax collection deficit has now reduced from the starting of September.
- Sustainability is the key as it is all about consistency, and if the trend goes on for the next five months, the gap between the projected revenue and the annual revenue for FY-21 will reduce by about 35,000 crore rupees.
Throughout the years since the implementation of the GST Act, there have been constant conflicts regarding the GST compensation shortfall, where the states are legally bound to receive compensation from the Central Government due to any deficit in the tax revenue system, which is essential for substantial growth of any economy.
In my opinion, the scheme adopted by the Government makes sense as the repayment of the borrowings, the State would pay the compensation cess collected by the sale of luxurious goods and services. The scheme is for the betterment of the nation after such a suffering period during the coronavirus outbreak and deems to be absolutely a masterstroke.
The funds acquired by the Centre expect to be injected into manufacturing and production activities in the hope of awakening the sick units of the industry. The thought of revival disseminated throughout the parliament, and hence the loss inculcated from the revenue deficit was reinforced by providing weekly expenditure in terms of borrowings to the state.
As long as the state is working in support of the needful, the economy would keep going smooth and steady amidst all the troublesome situations that will happen during the course of the digital era.