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Revenue Shortfall and GST Compensation: An Assessment

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  • Mukherjee, Sacchidananda

    (National Institute of Public Finance and Policy)

Abstract

Shortfalls in GST compensation cess collection vis-à-vis GST compensation requirements of states for the Fiscal Years 2020-21 and 2021-22 are concerns for the Union as well as State governments. During 2020-21, the Union government borrowed Rs. 1.10 lakh crore against Government of India securities to provide compensation to the States. The Union government has also committed to borrowing 1.59 lakh crore during 2021-22 from the market (as back-to-back loans) to provide compensation to the States. As the GST compensation cess will be extended to pay interest and principal payment liabilities of the debt incurred by the Government of India, in this paper, we estimate whether GST compensation cess collections at the current rate will be sufficient to service the debt cost. We also rank States and their relative dependence on GST compensation for 2018-19 and 2019-20. We find that the economic structure (origin versus consuming state) of a state is an important factor affecting revenues and thereby the level of compensation requirement.

Suggested Citation

  • Mukherjee, Sacchidananda, 2021. "Revenue Shortfall and GST Compensation: An Assessment," Working Papers 21/356, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:21/356
    Note: Working Paper 356, 2021
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    References listed on IDEAS

    as
    1. Sacchidananda Mukherjee, 2020. "Goods and Services Tax efficiency across Indian States: panel stochastic frontier analysis," Indian Economic Review, Springer, vol. 55(2), pages 225-251, December.
    2. Patnaik, Ila & Sengupta, Rajeshwari, 2022. "Analyzing India's Exchange Rate Regime," India Policy Forum, National Council of Applied Economic Research, vol. 18(1), pages 53-85.
    3. Mukherjee, Sacchidandanda, 2020. "Possible Impact of Withdrawal of GST Compensation Post GST Compensation Period on Indian State Finances," Working Papers 20/291, National Institute of Public Finance and Policy.
    4. Mukherjee, Sacchidananda & Badola, Shivani, 2021. "Public Finance Management in India in the time of COVID-19 Pandemic," Working Papers 21/337, National Institute of Public Finance and Policy.
    5. Tandon, Suranjali, 2021. "In search of a solution to tax digital economy," Working Papers 21/354, National Institute of Public Finance and Policy.
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    Cited by:

    1. Mukherjee, Sacchidananda, 2022. "Revenue Assessment of Goods and Services Tax (GST) in India," Working Papers 22/385, National Institute of Public Finance and Policy.
    2. Mukherjee, Sacchidananda, 2022. "State Finances in India - Analysis of Budget 2022-23 of Major States," MPRA Paper 113955, University Library of Munich, Germany.
    3. Mukherjee, Sacchidananda, 2022. "Analysis of State Budgets 2022-23 of Major States in India," Working Papers 22/386, National Institute of Public Finance and Policy.
    4. Kamila, Anshuman, 2021. "Fiscal dominance in India: An empirical estimation," Working Papers 21/359, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    Goods and Services Tax (GST) ; GST Compensation ; GST Transition Period ; Revenue Protection ; India;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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