ON April 1, 2019, the ministry of finance issued a statement announcing the GST collections for March 2019, the last month of the financial year 2018-19. The statement celebrated what was supposed to be the highest monthly collection since the introduction of GST – Rs 1,06,577 crores. What was, however, left out of the picture was what this collection put the final seal on – namely, that GST revenues for 2018-19 are well below the figure projected even in the revised estimates (RE) presented in the union budget 2019-20 on February 1, 2019. This RE figure itself was Rs 1 lakh crores below the budget estimates (BE) made a year ago.

The union government accounts up till February 2019 are available at the Controller General of Accounts (CGA) website. These show that the central government’s GST revenues (including CGST and UTGST, IGST and GST compensation cess) at the end of February 2019 stood at Rs 5,26,680 crores or Rs 1,17,220 crores (1.17 lakh crores) less than the RE target of Rs 6,43,900 crores (the original BE figure was Rs 7,43,900 crores). This means that even if the entire ‘record’ March 2019 GST collection had accrued to the centre, it would not have been enough to reach the RE figure for annual GST revenues. As it happens, Rs 51,209 crores of the March collection has already been earmarked for going into the kitty of state governments. Assuming that all the remaining amount of Rs 55,368 cores (which includes about Rs 8,000 crores of GST compensation cess) accrues to the centre – the total revenues of the centre from GST would be Rs 5,82,048 crores. This would be Rs 61,852 crores less than the RE of central GST collections and a whopping Rs 1.62 lakh crores lower than the original budget estimate.

The large shortfall in GST revenues of course has adversely hit the total revenues from central indirect taxes since GST is now the most important sub-set of this category of taxes. In the 2018-19 RE, GST revenues were supposed to be accounting for over 60 per cent of this total. It appears though that even other indirect taxes have done poorly. The union accounts for April-February of 2018-19 portray an extremely bleak situation – despite a supposed increase in nominal GDP of 11.5 per cent over 2017-18 in 2018-19, the growth in total indirect tax revenues compared to the same period (11 months) last year was less than 2 per cent. This means that even a dramatic improvement in collections in March 2019 cannot prevent a huge shortfall in indirect tax revenues. Thus, suppose the growth of all central indirect tax revenues compared to the previous year jumped from less than 2 per cent in April-February to 20 per cent in March –  even then the deficit in indirect tax revenues relative to RE for 2018-19 would be above Rs 1 lakh cores, and over Rs 2 lakh crores when compared to BE. Since the ‘highest’ monthly GST collection in March 2019 doesn’t reflect improvement of such an order, the actual deficit is likely to be even larger.

Clearly, therefore, the GST game plan seems to be failing so far as improvement in indirect taxes revenue generation is concerned. However, it isn’t the case that revenue collections from direct taxes are doing very well. Corporate taxes may just about make it to the level set out in the revised estimates – but even that would require the March 2019 growth over March 2018 to be 22.74 per cent, higher than the 15.43 per cent increase seen in April-February 2018-19 collections over the same period in the previous year. As far as personal income taxes are concerned, there is absolutely no question about the fact that for the second successive full year after demonetisation, income tax revenues are not going to come even remotely close to the extremely optimistic BE figures which were retained as RE targets too. Any reasonable projection from the collections for the first 11 months (April-February) would show that the full year figure is going to be at least Rs 50,000 crores less than what was projected in BE/RE. As a result, income taxes as a percentage of GDP would end up at level which would be barely 2.5 per cent – reflecting the fact that demonetisation has produced absolutely no effect on the observed trend of an extremely slow rise in this ratio over time despite the fast rising incomes of the rich who are required to pay these taxes. The government propaganda machine has of course been bandying about the increase in the number of people filing tax returns as if that trend began after demonetisation. The same kind of story of numbers, however, has also been made about the GST. What these numbers conceal is that there is no one to one relationship between numbers in the tax net and quantum of revenues. In case of income tax, over 90 per cent of those filing returns pay no tax or very little and salaries account for 57 per cent of the declared income – almost double the business income declared! If such figures were to prove anything, consider this – the number of PANs (Permanent Account Numbers) allotted up to December 2018 to individuals by the Income Tax department is close to 37 crores – more than five times the number filing returns and almost 75 per cent of India’s total workforce!

Between direct and indirect tax shortfalls therefore, in the last financial year of the Modi government, central taxes will generate at least Rs 1.5 lakh crores less than what was projected just about two months ago. Since the RE for gross tax revenues of the central government was already about Rs 23,000 crores less than the BE level – compared to the projections at the beginning of the year, the shortfall will be at least Rs 1.75 lakh crores. This is close to one per cent of India’s GDP. It’s an amount which alone would be more than what would be required to give every Indian household, the Rs 6000 per annum income support that the Modi government announced for small farmers. An alternative way of putting it is that it would be sufficient to give nearly 15 crore households – covering more than half the Indian population – Rs 1000 a month worth of support in one or another form. Part of the effect of this revenue shortfall in central taxes will of course be felt by state governments as they will get a lesser amount as their share in these taxes. In addition, the shortfall in GST revenues will also have to mean GST revenues of state government’s would be below par. 

The implications of the drastic shortfalls in revenue in 2018-19 means that the financial year has either ended with a fiscal deficit much larger than what had been estimated or with a severe cutdown in expenditure in the month of March. Given the revenue and expenditure trends till February, the central government fiscal deficit was already 34 per cent in excess of the full year RE figure one month before the closing of the financial year – or close to 4.5 per cent of GDP. The new government assuming office after the general elections will thus have to face a choice. One option is to combine giving up the mindless obsession with reducing the fiscal deficit to 3 per cent of GDP with a more aggressive effort at mobilising taxes from the rich, the wealthy and big business. The former would mean discarding the FRBM Act. The premise of the latter has to be an acknowledgement of what both the trends in GST and income taxes show, namely that unlike what is propagated, the large part of the tax evasion is by those within the tax net and not those hiding bundles of cash under their mattresses. The only other alternative for the new government would be to initiate a drastic austerity programme – a more severe version of what has been attempted by successive governments throughout the current decade. This alternative is the rock-solid certainty that the Modi-led BJP offers should it be re-elected and therefore its defeat is absolutely imperative if a greater attack on the people is to be avoided. The question, however, still remains – will the country get a truly new government, a Majboot Sarkar that is capable of taking on powerful interests and choosing the other and bolder pro-people alternative?