IGST: Kerala Public Expenditure Review Committee urges State government to address issue of revenue loss

Panel urges Kerala government to commission a detailed study on multiple aspects related to the IGST mechanism

Published - July 11, 2024 03:10 pm IST - THIRUVANANTHAPURAM

The Kerala Public Expenditure Review Committee has underscored the need for Kerala to pay close attention to the Integrated Goods and Services Tax (IGST) mechanism, observing that the present system actually works towards revenue loss for the State.

“The committee based on certain assumptions regarding value addition within the State and the return filing behaviour of traders estimated the gross loss on account of IGST from July 1, 2017, (when GST came into effect) to till date could be about ₹20,000 crore to ₹25,000 crore,” the sixth committee chaired by D. Narayana said in its first report on the 2019-20, 2020-21 fiscals tabled in the State Legislative Assembly on July 11.

The committee noted that the manner in which IGST has been designed and implemented in India does not provide any room for benefitting a consumer State like Kerala. Furthermore, the Kerala government is hamstrung by the lack of ‘detailed and disaggregated data’ on the functioning of the IGST clearing mechanism, it noted. This stands in the way of the State government in monitoring the tax revenue.

With the cessation of GST compensation, the losses under this component could prove to be higher in future, since the design and implementation of GST is such that much of its advantages go to the producing States with higher production than consumption, the report noted.

The committee’s observations should be viewed in the context where Kerala had welcomed the destination-based GST with great expectations. Besides, the Opposition Congress-led UDF has repeatedly blamed the LDF government of failing to ensure the IGST inflow legally due to the State.

“The committee is of the view that the gains from GST to a State like Kerala will accrue if and only if the principle of destination-based consumption tax becomes operational through the disaggregated and transparent system of the IGST settlement mechanism. As of now, this system works towards revenue loss through IGST which should be addressed sooner rather than later,” it said.

The panel has urged the State government to commission a detailed study on multiple aspects related to the IGST mechanism. At the same time, the committee also noted that GST, even in countries where it was introduced years ago, is considered to be a “work in progress.”

It is in this context that the issues faced by Kerala related to IGST should be viewed, it said. “The Committee is of the view that the issue could be resolved by the collective action of consumer states like Kerala with the GST Council and the Central government,” the report noted.

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