The government may be losing ₹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 (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 (GDP). This works out to ₹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 ₹1 trillion a month GST revenue in the first nine months of this fiscal.

In the nine months to 31 December, central and state governments have collected more than ₹9 trillion in GST and hope to collect another ₹3.55 trillion by March-end.

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 it is struggling to meet the revenue targets for the year. According to 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 GDP, according to the FFC presentation, the highlights of which are now available in public domain from the minutes of the meeting.