FFC has assessed that the revenue loss was equivalent to 2.4% of gross domestic product. This works out to Rs 5 trillion if one goes by the first advance estimate of nominal GDP for FY20 released earlier this month. (PTI Photo )

The government may be losing Rs 5 trillion in indirect tax revenue a year, amounting to 40% of its goods and services tax (GST) collection target, because of defaults and evasion, according to the Fifteenth Finance Commission’s (FFC), confirming policymakers’ fears that businesses are not paying their fair share of taxes.

In a recent presentation made to the GST Council, FFC has assessed that the revenue loss was equivalent to 2.4% of gross domestic product. This works out to Rs 5 trillion if one goes by the first advance estimate of nominal GDP for FY20 released earlier this month. This is as much as 40% of the GST revenue centre and states together may collect this year, going by the trend of an average Rs 1 trillion a month GST revenue in the first nine months of the current fiscal.

In the nine months to 31 December, central and state governments have collected more than Rs 9 trillion in GST and hope to collect an additional Rs 3.55 trillion by end of March.

FFC’s estimate of revenue loss from non-compliance is giving a strong backing to the tax administration’s bid to tighten enforcement at a time they are struggling to meet the revenue targets for the year. According to the FFC, India’s overall tax-to-GDP ratio is about 17.2%, which as per its calculations, should be about 22.6%.

There is a gap of about 5.4%, of which, GST compliance gap accounts for about 2.4% of the GDP, according to the FFC presentation, the highlights of which are now available in public domain from minutes of the meeting.