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Pandemic and GST Revenue: An Assessment for Union and States

Sacchidananda Mukherjee ()

Working Papers from National Institute of Public Finance and Policy

Abstract: Uncertainties surrounding GST collection in financial year 2020-21 have heightened due to ongoing COVID-19 pandemic. Given that economic activity is gradually returning to prepandemic levels, this paper projects overall as well as state-wise GST collection for 2020-21. The estimated GST collection of 2020-21 is the sum of realized GST collection during April to October 2020 and projected GST collection during November 2020 to March 2021. The study builds different scenarios based on monthly (year-on-year) growth experience with different assumptions about the likely base of GST collection for the remaining months of the current fiscal year. The revenue gap is estimated for states by taking the difference between the projected GST collection and revenue under protection in GST for 2020-21. The difference between the projected GST compensation cess collection in 2020-21 and sum of the revenue gaps of states provides the expected additional revenue requirement for full GST compensation payments to states. Acknowledging that a part of revenue loss is due to the pandemic, and that the compensation mechanism to fill the shortfall for 2020-21 and coming years is still evolving in the GST Council, present paper contributes to the ongoing debate on GST compensation requirements of states by projecting alternative set of numbers for the year 2020-21. As per our estimates, shortfall in GST compensation fund is expected to be Rs. 1.95 lakh in the best case scenario as against Rs. 2.35 lakh crore estimated by the GST Council. In the worst case scenario, the shortfall will be Rs. 2.45 lakh crore for the fiscal year 2020-21.

Keywords: Revenue Projection; Goods and Services Tax (GST); Revenue Under Protection (RUP); GST Compensation; Tax Effort; Tax Compliance; India. (search for similar items in EconPapers)
JEL-codes: C53 H25 H68 H71 (search for similar items in EconPapers)
Pages: 32
Date: 2020-12
Note: Working Paper 327, 2020
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