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The Goods and Services Tax (GST) revenue shortfall faced by states is likely to reduce by about Rs 40,000 crore in the current fiscal (FY21) on improved collections over the past four months. The sharp decline in GST collections was estimated to lead to Rs 1.80 lakh crore shortfall in GST revenues of states. This includes Rs 1.10 lakh crore revenue loss on account of GST implementation and Rs 70,000 crore on account of COVID-19 pandemic.

The centre had set up a special window to borrow funds and pass on to the states for meeting the Rs 1.10 lakh crore GST revenue loss. Improved GST collections could bring down the total shortfall amount to around Rs 1.40 lakh crore. Rs 1.10 lakh crore would be borrowed through the special window as planned and a higher mop-up would be utilised to compensate for the loss of revenue due to COVID-19. The centre has already borrowed and releases to the states Rs 1 lakh crore under the special window.

For next fiscal beginning April 1, the GST council will decide on the mechanism for compensating states in its upcoming meeting in March. The revenue loss next fiscal would be much less compared to this fiscal. However, meeting the 14 percent revenue growth would be difficult.