MANISH GUPTA
Ranchi, June 28: As the GST Council began its two-day meeting today in Chandigarh, the Jharkhand government is tense about the GST compensation coming to an end on Thursday after running for five years since the rollout of GST in July 2017.
“The state government is trying its best to bridge the financial gap but the Centre has to come forward and extend the GST compensation period to the states beyond June 30,” said Harishwar Dayal, Director in Chief, Centre for Fiscal Studies, Government of Jharkhand.
The states were assured compensation at the compounded rate of 14% from the base year 2015-16 for revenue shortfall after GST subsumed taxes like VAT that were levied by the states for five years under the Goods and Services Tax (Compensation to states) Act, 2017.
“Jharkhand is a producing state, while GST is a consumption based tax. So, the state is heading towards a revenue loss. Our dependence on compensation is larger. Stopping the compensation would prove to be a major challenge for the state,” said Dayal.
However, the economist said that the current financial health of the state is quite healthy with sustainable debt and surplus revenue.
“We are a revenue surplus state and that means we have money left at our disposal after meeting our recurring expenses, and this money is used for capital expenditure. In the financial year 2019-20, the state’s revenue surplus was about Rs 2,000 crore.
“Besides, Jharkhand is a FRBM compliant and debt sustainable state. We had a fiscal deficit of about Rs 8,000 crore in 2019-20, which is 2.5% of the state’s GDP. The state’s interest burden has always been less than 10%. Also, we started a sinking fund two years back for debt redemption. This allows the state to get loans at lower interest rates. Even RBI gives the leverage in ways and means advances,” the director said.
The economic slowdown in 2019-20 and the pandemic in 2020-21 resulted in a loss of potential revenue of about Rs 18,000 crore in the state’s share in central taxes. While the revenue from this source grew at an average annual rate of 14.4% between 2015-16 and 2018-19, it fell down by 13.9% in 2019-20 and 4.4% in 2020-21.
“Over the years, the Union government has made use of cesses and surcharges as an additional revenue mobilisation measure. As these are not shared with the states, the total divisible pool has declined as a percentage of gross tax revenue.
“While the 15th Finance Commission recommended devolution to states at 41%, the actual devolution to states (vertical transfers) has actually declined to 30% of the gross tax revenue due to the cesses and surcharges in the total collection,” he said.
With limited sources of revenue generation for the state restricted to non-GST items (land revenue, excise on liquor, registration, transport and petroleum), the only other way for Jharkhand to partially fill the GST compensation gap will be to improve tax compliance.