The sluggish growth in Goods and Services Tax (GST) revenue receipts, unless reversed quickly, could lead to a 40,000 crore shortfall by the end of the current fiscal, straining finances of the central government which is required to make good on states’ revenue loss, analysts at Credit Suisse have warned.

The finance ministry on Sunday said the Centre and state governments collected 98,202 crore in GST in August, 4.5% more than what was collected in the corresponding month a year ago, but lower than the over 1 trillion collected in July this year.

GST collection which touched 1.13 trillion in April this year have not sustain the momentum. The subdued trend in GST receipts coincides with a sharp slowdown in economy, which expanded at 5% in the June quarter, its slowest pace in six years.

According to the Credit Suisse note, growth in indirect tax mop-up in the first five months of the current fiscal has been 6.4%, well below the 10% estimated for the year. If this pace is maintained for the full year, the shortfall could be 40,000 crore, it said. The central government compensates states from the revenue generated through a cess imposed on sale of certain products such as automobiles.

“The rules are not clear to us, but if compensation need exceeds (the) cess collected, the extra funds would go out from general fiscal expenses. While this is just a centre-state allocation issue, it can have a negative growth impact," said the note.

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