Lok Sabha Question No. 1918 (UNSTARRED), answered on 2018-12-21
Subject: GST Shortfall and Compensation
Ministry: FINANCE
Asked by: K. MARAGATHAM, ELUMALAI VELLAIGOUNDER

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE

## LOK SABHA UNSTARRED QUESTION NO. 1918

TO BE ANSWERED ON FRIDAY, THE 21 st  DECEMBER, 2018 30 Agrahayana, 1940, (SAKA)

## GST Shortfall and Compensation

1918. SHRIMATI K. MARAGATHAM: SHRI V. ELUMALAI:

Will the Minister of FINANCE be pleased to state:

- (a) whether the States faced an average 16 percent shortfall in Goods and Services Tax (GST) revenue collections in the first year of implementation and that has now narrowed to 13 percent and if so, the details thereof;

(b) whether the States which are facing a revenue shortfall will require compensation funds by levy of compensation cess under GST and if so, the details thereof;

(c) whether the GST Council has received a report on the revenue shortfall faced by the States and if so, the details thereof;

(d)  whether  the  revenue  shortfall  of  States  due  to  GST  was  one  of  the  major discussions in the 30th meeting of GST Council and if so, the deliberations made in the said meeting; and

(e) whether six States/UTs are posting a revenue surplus under the indirect tax regime but rest 25 States are facing a revenue shortfall ranging from 3 percent to 42 percent and if so, the details thereof?

## ANSWER

## MINISTER OF STATE IN MINISTRY OF FINANCE (SHRI SHIV PRATAP SHUKLA)

- (a): The total revenue to be protected to states/UTs for the FY 2017-18 and 2018-19 have been Rs. 42,979 crore and Rs. 48,999 crore respectively. Against the above target, the average shortfall in revenue collection have been 16% and 13% for the FY 2017-18 and 2018-19 respectively.
- (b): Rs. 48,178 crore and Rs. 30751 have been released as GST compensation to the States/UTs compensation for FY 2017-18 and FY 2018-19 (April, 2018 to Sep, 2018) respectively.

(c)  &  (d):  Yes  Madam.  The  GST  Council  has  received  the  report  on  the  revenue shortfall faced by the States. The revenue shortfall of States was one of the agenda for discussion in the 30th Meeting of the GST Council.

Consequent upon decision taken during 28th GST Council Meeting held on 21st July, 2018  in  respect  of  study  to  be  conducted  regarding  the  large  revenue  gap  as compared  to  the  national  average  of  the  states  of  Punjab,  Himachal  Pradesh, Uttarakhand,  Jammu  &  Kashmir,  Puducherry  and  Bihar.  The  then  Union  Finance Secretary  visited  the  States  of  Jammu  &  Kashmir,  Punjab,  Himachal  Pradesh  & Puducherry  for  conducting  their  Revenue  GAP  analysis.  After  his  visit,  he  has submitted a detailed report which was discussed in the meeting of 30th GSTC held on 28th September, 2018. It emerges from the study that one of the major reasons for huge shortfall of revenue in the States/UTs under study is the inbuilt structural design of  GST in which  the  taxes  are  levied  on  destination-based  principle.  In  the  States suffering huge revenue gap, the contribution from the subsumed taxes such as CST, Purchase Tax etc. in pre-GST regime to the State's exchequer was very substantial. Some other reasons for revenue shortfall are natural and structural factors such as geographical location, size of economy, endowments of natural resources, smaller taxable  base,  consumption  pattern,  differential  tax  rates  under  VAT  regime  etc.  In addition, percentage of return filing, e-way bill implementation etc. in these states were also discussed.

(e):  The  States  with  revenue  surplus  in  the  FY  2018-19  are  Andhra  Pradesh, Arunachal Pradesh, Manipur, Mizoram, Nagaland and Sikkim.