States' GST revenue growth rate may be cut to 10-12% from FY21: Report

The growth in states’ goods and services tax (GST) revenue could be reduced to 10 or 12 percent from the promised 14 percent starting FY20-21, Business Standard has reported.

A senior government official told the newspaper that an immediate change is “off the table”, but the proposal would be considered in the long term.

Moneycontrol could not independently verify the report.

The matter was raised in the GST Council meeting during a presentation by 15th Finance Commission Chairman NK Singh and could be implemented from the next financial year – FY21, if states agree, sources said.

It is believed that most states would oppose the move. They could shift stance on the lower protected growth rate in exchange for an extended compensation period beyond June 2022.

As it stands, the 14 percent revenue growth rate is protected by the Centre and a shortfall has to be compensated till June 2022. Levies and compensation cess on some items over and above the GST rate was introduced by the council to compensate states.

This is subject to states showing a 14 percent growth in GST revenues themselves. Notably, apart from Northeastern states, none have registered a 14 per cent growth in GST.

If protected growth in GST revenue is reduced to 10 percent, the Centre will save over Rs 25,000 crore for FY21. The amount is 0.1 percent of the gross fiscal deficit.

GST list topper Maharashtra has the most to lose, as its protected revenue will drop by Rs 4,000 crore followed by Karnataka (Rs 2,500 crore) and Tamil Nadu (Rs 2,000 crore).

If protected growth in GST revenue is reduced to 12 percent, the Centre will save close to Rs 15,000 crore in FY21.

The numbers are derived from the data presented by the Finance Ministry to Parliament.