Talking to media persons after attending GST Council meeting in New Delhi, Arun Jaitley said that the deficit in revenue collection targets of states under the GST came down to 13 per cent till August this year compared to 16 per cent last year.

The trend, according to Jaitley, suggests that it may may come down further by one to two per cent by end of the year considering the high consumption.

 “We have to neutralize the state deficit to zero by the expiry of the five-year period (of GST implementation)... Closer it gets to zero, states would get closer to achieving their revenue targets themselves,” he said.

The revenue targets of states are calculated by adding a 14 per cent annual increment to their 2015-16 indirect tax collections.

Jaitley said that despite adding three increments for 14 per cent, the North East states had no revenue shortfall which was a “first sign of encouragement”.

He said out of the six states which had shortfall in collection, Finance Secretary Hasmukh Adhia visited five and gave detailed reports indicating the “reasons and special circumstances” for such shortfall.

He said one common thread was existence of some form of special taxation in some of those states in 2015-16, which inflated the collection in that year compared to the previous year.

“Like in Bihar, 2015-16 was the year of prohibition and hence the state imposed an additional VAT which inflated VAT collections of that year by 27 per cent over 2014-15. Bihar benefited from that aberration since that became the base on which it gets 14 per cent increment each year,” he said.

However, he said, the big picture that was emerging showed that in each state, the revenue collection was better in the second year (till August) of GST compared with the first year.