This projected shortfall puts in context the fears expressed by Finance Secretary Hashmukh Adhia in June in an internal note to central tax officers. In the note, Adhia expressed concern over the low number of returns filed under the CGST as compared to those filed under the state GST (SGST).

The projected Rs 517 billion shortfall is based on the data for the gross CGST and IGST collections, the refunds against each of these and the settlement from the IGST pool.

The projection

Assuming 10 per cent growth in revenues on a QoQ basis, the Centre’s gross CGST collections work out to Rs 2,337 billion for 2018-19, while IGST collections are pegged at Rs 6,869 billion.

Taking into account the government’s plan of retaining Rs 500 billion as unsettled IGST at the end of the year (as indicated in the Budget) and assuming the remaining amount of Rs 6,369 billion is divided equally between the Centre and the states, the Centre will get another Rs 3,184.5 billion.

This puts the Centre’s collections at Rs 5,522 billion at the end of 2018-19 excluding refunds, as compared to the target of Rs 6,039 billion. “Given the current GST run rate, it will be difficult for the central government to meet the 2018-19 Budget Estimates (BE). We believe there is a possibility of around 20-25 basis points of slippage in GFD/GDP from lower GST collections. We will be watchful on (1) whether the compliance and the monthly run rate improves as the e-way bill mechanism settles down, and (2) settlement of the IGST between the Centre and states which could be helpful in closing the GST revenue gap for the Centre,” says Suvodeep Rakshit, an economist at Kotak Institutional Equities.

A caveat is in order

According to the data, the Centre’s net collections, excluding refunds, are lower at Rs 487 billion as compared to the gross number of Rs 504 billion in Q1 of 2018-19.

But using the net collections of Q1 to project for the entire year is problematic. A QoQ change in refunds is hard to discern as the impact of credits from the previous indirect tax regime continues to play out. The RTI data shows that for the first quarter of 2018-19, refunds from the CGST stood at Rs 17 billion, as compared to Rs 19 billion from December 2017 to March 2018 (accounting month).

Target to achieve

In its 2018-19 Budget, the Centre has budgeted 13.7 per cent growth in the CGST plus the unsettled component of the IGST over 2017-18. But with the mop-up for Q1 being lower than expected, the Centre will now have to ramp up collections for the next three quarters by a bit over 20 per cent QoQ.“The early data for monthly GST collections seems to be tracking a lower average than what is required to meet the Centre’s BE for 2018-19. However, we are hopeful that the benefits of the e-way bill and formalisation, as well as the seasonal uptrend in consumption towards the later part of the year, particularly during the festive season, would ensure that the gap between the BE and the actual collections would be limited,” says Aditi Nayar, principal economist at Icra.

One could argue the 10 per cent growth rate is an underestimate as the last quarter typically sees a bump-up in revenues as the filing date deadline nears. However, under the GST regime, the revenues for March are collected in April. So rather than the uptick showing up in March, it now shows up in April.

Further, the assumption of the equal split of the IGST between the Centre and states is based on the data for Q1 FY19.

Of the Rs 1,480 billion collected under the IGST, Rs 840 billion was transferred to the Centre and states, with the Centre getting Rs 425 billion (50.5 per cent) and states getting Rs 415 billion (49.5 per cent). This is a reversal of the trend in the previous year where the Centre got only 42 per cent of the IGST that was distributed.

Other revelations

The projected shortfall in tax revenues is despite some positive trends visible in the granular data on the GST accessed through RTI.

First, at the end of March 2018, Rs 128 billion was refunded under the IGST. By comparison, at the end of Q1 of 2018-19, refunds stood at Rs 169 billion.

“If the ‘refunds’ of IGST are (largely) export credit, this indicates that export credit refunds are now being facilitated, unclogging exporters' working capital,” says Saugata Bhattacharya, chief economist at Axis Bank.

Second, the trends under the IGST suggest a rise in collections after the implementation of the e-way bill. Gross IGST collections averaged Rs 493 billion in Q1 of 2018-19, up from Rs 447 billion in the last quarter of 2017-18.