November GST Revenues Decline in Many States Amid Rate Cuts and Cess Exemption
The impact of the removal of the GST compensation cess is already visible on state revenues. Several states, including Jammu and Kashmir, Punjab, and Uttar Pradesh, saw a decline in GST collections in November. Previously, the compensation cess covered the shortfall, but now states will have to make up for it themselves. The government has ruled out introducing an alternative cess, which could increase states' concerns.
The impact of excluding the compensation cess from the scope of GST is now becoming visible on state revenues. Several states witnessed a fall in GST collections this November over the same month last year.
These include Jammu and Kashmir, Punjab, Uttarakhand, Delhi, Uttar Pradesh, West Bengal, Jharkhand, Madhya Pradesh, and Andhra Pradesh. Some states such as Gujarat and Maharashtra reported a one and four percent increase in GST collections, respectively. This shortfall has previously been compensated by the compensation cess.
Following the revision in GST rates in September, all items except pan masala and gutkha were exempted from the compensation cess. Compensation cess collected on items, such as pan masala and gutkha, is also being utilised for repaying those loans that the Centre took to help states during the COVID-19 pandemic.
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This loan will be repaid by March next year, and compensation will no longer apply to any item. Meanwhile, in September, the GST Council meeting took a major decision to reduce GST rates. 90 percent of items previously in the 12 percent slab were moved to the 5 percent slab. This impact on GST collections in November was more pronounced for states.
The central government's total GST revenue also saw a mere 0.7 percent increase compared to November last year. According to GST experts, previously, the compensation cess compensated for the shortfall in states' SGST collections. Now, states will have to make up for it themselves.
The Finance Ministry clarified in Parliament on Tuesday that the government is not introducing any alternative cess or tax to replace the compensation cess to provide financial assistance to states. Many states that had promised freebies to the public during the elections are already under financial pressure.
In such a situation, a decrease in GST collections could be a cause for concern. GST collections are directly linked to the sale of goods. States with higher sales will also see higher GST collections.
GST collections include SGST (State GST), CGST (Central GST), and IGST (Integrated GST). SGST is entirely borne by the states, while CGST is entirely borne by the central government. IGST is divided between the states and the central government.
In November, compared to November last year, GST revenues in Jammu and Kashmir declined by 14 percent, Punjab by 13 percent, Uttarakhand by eight percent, Delhi by three percent, Uttar Pradesh by four percent, West Bengal by nine percent, Jharkhand by 30 percent, Madhya Pradesh by 17 percent, Andhra Pradesh by five percent, and Rajasthan by four percent. Several other smaller states also experienced similar declines in GST collections.
