States have been asked to furnish their Value Added Tax (VAT) collections for June and July to help Centre in determining the revenue gap after the shift to the Goods and Services Tax (GST) regime. Only after the collation of VAT data with the available July SGST (state GST) figures is finalised, the calculations for compensation for states under the indirect tax regime will get kickstarted, two government officials said.
Even though the shift to GST happened from July 1, subsuming most indirect tax levies, states continue to levy VAT on the products excluded from GST – alcohol for human consumption, electricity and five petroleum products: Petroleum crude, motor spirit (petrol), high-speed diesel, natural gas and aviation turbine fuel.
Officials from states and the Centre are also engaged in discussions regarding the high level of claims of credit under GST. States are facing cash crunch as around Rs 37,000 crore of over Rs 47,000 crore Integrated GST (IGST) is locked as credit, one of the officials cited above said. “Including IGST in the overall revenue collections for July could be an overstatement since only Rs 10,000 crore of over Rs 47,000 crore IGST collection has been distributed between the states and the Centre. The remaining Rs 37,000 crore is available as credit, not cash flow to states. It will slowly get offset by taxpayers against payment of IGST/CGST/SGST over the next few months,” the second official said.
Officials say that the Rs 37,000-crore IGST available as credit is technically tax paid on unsold stock across the country and the payment will flow into government coffers only when transactions take place and the taxpayers offset the credit against the IGST, CGST and SGST, in that sequence.
Also, over Rs 65,000 crore has been claimed by taxpayers as the transitional credit for Central GST (CGST) in TRAN-1 form, which is being verified by the CBEC and the GSTN, the IT backbone of GST.
The benefits accruing to states in terms of higher VAT collections in June (which flowed into state coffers in July) due to huge destocking by businesses before the GST rollout has also featured in the Centre-state talks pertaining to the GST revenues, one of the officials cited above said, adding that it would be important to include those figures in GST-related compensation calculations.
On September 9, after the 21st GST Council meeting in Hyderabad, when asked about the liquidity issues faced by states, finance minister Arun Jaitley had said the issue has been more in first month and will go down gradually in second and third month. “IGST is preserved and as and when CGST/SGST liability arises, it will keep getting converted as tax payments,” he had said.
Jaitley had also said: “There was a large unutilised IGST of about Rs 48,000 crore. Of this, Rs 10,000 crore has been paid and adjusted between the Centre and states. The remaining is a transient balance and will be adjusted later.”
A senior government official said that of the Rs 10,000-crore IGST distributed between the Centre and the states, about Rs 7,000 crore had gone to Centre, while about Rs 3,000 crore had been passed to the states. The official explained that a major chunk of the IGST transactions are B2B transactions and are expected to be utilised to offset against IGST/CGST/SGST credit in future. Some part of the total IGST distributed included tax accruing from inter-state B2C transactions, which was equally divided between the Centre and the states. Rest of the Rs 10,000-crore IGST has been utilised by taxpayers to offset against IGST or CGST or SGST, the official added.
Officials said the government is also moving cautiously on the issue of finalisation of the GST revenue and has not even given a final figure for inclusion in the fiscal deficit data. “The revenue department is treading cautiously and wants to see the trend for at least two months before giving a final GST revenue figure for the purpose of calculation for monthly government accounts,” an official said.