Chennai: Kerala says it is keen to move out of GST compensation from next year. However, studies suggest that GST compensation requirement of nine large states, including Kerala, is likely to double to Rs 60,000-Rs 70,000 crore in FY20.
Under GST (Compensation to States) Act, if a state's GST revenue does not grow by at least 14 per cent over the base year of 2015-16, the Centre has to pay it the difference every two months.
Kerala said that it wants to be out of the GST compensation for FY20. Kerala finance minister Thomas Issac is optimistic that by getting better access to data and by strengthening compliance, the state will be able to move out of the list of states which are compensated under GST.
"That is our target. This time the downturn had affected the sales. Further, Kerala is a consumer state and 80 per cent of the consumer goods come into the state through the borders. We could not effectively plug the porous borders," he told Financial Chronicle.
He has asked the central government to facilitate a couple of things for better compliance. "Give us real time access to e-way bill and we will put up robust surveillance mechanism. This will help us plug the loss of revenue from the vehicles bringing goods into the state," he said.
He also wants the Centre to ensure that there is no delay in the filing of annual returns. This will make invoicing quicker.
According to rating agency Icra, the GST compensation requirement of nine large states--Karnataka, Kerala, Gujarat, Maharashtra, Punjab, Haryana, Rajasthan, Tamil Nadu and West Bengal-- will double from Rs 36,100 crore in FY19 to Rs 60,000-Rs 70,000 crore in FY20. The headline GST was growing at 3.75 per cent in April-November 2019, so actual SGST collections in FY20 will be considerably lower than the level of revenues protected under the GST. Making a 5 to 8 per cent growth projection, Icra has estimated the compensation required for these states for FY20.
"These states are heavy borrowers and the government entities also come to markets for borrowing," said Aditi Nayar, principal economist, Icra.
According to the rater, the timing of the release of compensation to these states by the central government would critically affect their cash flows. Moreover, the central tax devolution (CTD) to these states in FY20 could be Rs 59,500-Rs 77,000 crore lower than what the central government has budgeted, which has emerged as a key revenue risk for the states in FY20.
The Centre's actual gross tax revenue is likely to be Rs 3-3.5 lakh crore lower than the FY20 revised budget estimates of Rs. 24.6 lakh crore. After factoring in the shortfalls in gross tax collections in FY19 and the estimated gap in FY20, the aggregate CTD to all the Indian states may be as much as Rs. 1.7-2.2 lakh crore lower in the current year than what was budgeted by the central government.