Budget 2019: GST Returns Fall Short, Fuel & Gold Prices Hike

Increase in petrol and diesel prices often have a cascading effect.

As Finance Minister Nirmala Sitharaman’s maiden budget speech drew to a close, one of the major talking points was probably saved for the last few sentences.

In one stroke, she announced a Rs 2 per litre hike in petrol and diesel prices, levying a special additional excise duty and a road and infrastructure cess - of Re 1 each.

The proposal came as a bit of a surprise as fuel price hikes have always been one of the most prominent issues of discontent among common people. Moreover, increase in fuel prices have a cascading effect. For example transport and freight charges are likely to go up, thereby causing an overall price rise.

Besides making fuel dearer, the government also increased customs duty on gold and other precious metal from 10 percent to 12.5 percent.

Both the hikes can be charted back to a common link and to put things into perspective, the government is in a sort of straitjacket, which eventually forced it to take such a decision.

Ambitious Expectations, Tepid Returns

The Modi-led NDA government has always laid stress on fiscal prudence and keeping in line with that outlook, has pegged the fiscal deficit at 3.3 percent for the financial year 2019-20, slightly lower compared to the 3.4 percent in 2018-19.

However, data suggests that the government has fallen significantly short of its target, as far as earning revenue is concerned.

Compared to a total revenue expectation of Rs 17.30 lakh crore in 2018-19 (see yellow-coloured bar under FY19 RE in graph below), the government has earned Rs 15.63 lakh crore (see yellow-coloured bar under FY19 CGA data in graph below), according to Controller General of Accounts (CGA) data - difference of Rs 1.67 lakh crore.

Also, the shortfall is under the bracket of tax revenues, as the non-tax revenue target has been comfortably achieved.

Despite the shortfall however, the government has further stretched its revenue target to Rs 19.63 lakh crore in FY20 and this is exactly where Sitharaman decides to pinch the pockets of fuel consumers.

Excise Duty, Customs to Make Up for GST Shortfall

Talking about falling short of tax revenues, earnings or the lack of it in the form of Goods and Services Tax (GST), will be on top of the government’s list of concerns.

In the budget estimate of 2018-19, government pegged revenues from GST at Rs 7,43,900 crore. However, in the current budget the revenue expectation from GST has been lowered to Rs 6,63,343 crore.

This is largely because of the monthly GST collections coming at less than the targeted Rs 1 lakh crore in most of the one-month periods in the previous financial year.

Notably, the Union Budget provides estimates only for CGST i.e. the GST revenues earned by the central government.

On the other hand, the revenue expectations from excise duties and customs have been substantially increased, as compared to the previous fiscal year.

Quite interestingly, the additional revenue that the government hopes to earn from customs and excise duty amounts to about Rs 83,500 crore, which is almost equal to the Rs 80,000 crore shortfall that it foresees from GST collections.