India’s Goods and Services Tax Council to meet today
India’s Goods and Services Tax (GST) Council will hold its 40th meeting today to discuss the COVID-19 pandemic’s effect on tax revenues.
New Delhi currently faces a shortfall in compensation cess collections, which were introduced to balance the loss of revenue stemming from the nationwide GST rollout in 2017. Per the agreement, states were guaranteed 14% tax revenue growth in the first five years after implementation, provided they relinquish their local levying powers.
The evolving impact of COVID-19 has severely constrained the ability of the central government to make good on its promise of 14% growth. In a continuation of the council’s previous meeting in mid-March, members are expected to discuss the legality of domestic market borrowing to meet the revenue guarantee to Indian states, as well as compliance-related measures such as late fee waivers.
Expect any decision to preclude further rate manipulation due to heavy uncertainty surrounding short-term revenue statistics. Full GST compensation will likely strain state coffers, as the total amount owed would legally entail all revenue lost until 2022 if states fall short of the 14% target (a scenario which looks increasingly likely). With a viable vaccine in the works—though still some time away from mass distribution—the council’s decision will have drastic implications for the national recovery timeline. Irresponsible borrowing could exacerbate sector instability in the long-term.
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