GST systematically flawed, there is lot of tax leakage: Kerala FM

Kerala Finance Minister K N Balagopal has sought systemic changes in the GST structure, saying every state and consumer has lost because of its basically flawed architecture that has also led to rampant revenue leakage for the states.

The Goods and Services Tax (GST) regime came into force in July 2017. Even though the framework is focused on having a one-nation-one-tax model, quite a few items, including petroleum products and liquor are still out of the GST purview.

"The four years of the Goods and Services Tax (GST) regime has led to a steep 61 per cent plunge in our own tax revenue, because both the structure as well as the design of GST are systemically flawed, creating enough room for leakages. And as far as I know, this is not just for Kerala but for all the states," Balagopal told PTI during a recent interview in his Assembly chamber in Thiruvananthapuram.

Balagopal, who assumed office in May when the CPM government led by Pinarayi Vijayan returned to power, also said that Kerala's total revenue has declined by a third after the GST was rolled out and called for some radical changes in the four-year-old tax regime, but did not elaborate on the changes required.

As a Rajya Sabha member, Balagopal, in 2015, had opposed GST saying it would encroach upon the federal structure and also take away most of the powers of states, especially on the taxation front.

He had also given a dissent note to the select committee that was then looking into the proposed GST framework.

Stating that his and the party's ideological opposition to GST remains unchanged, Balagopal said, "We opposed it in principle even from the stage of the first draft bill".

The Centre had claimed that goods traffic would be quick and without any barriers and consumers would benefit as prices would fall on lower taxes, but "let me tell you that sadly both are not met", he pointed out.

"None of these promises is fulfilled and consumers are forced to pay more. Tax evasion is rampant.

There's no increase in tax revenue. Even before the pandemic, the revenue of the states, including Kerala's, was stagnating.

"Actual income of the states have been coming down. People also did not get any benefit as prices went up instead of falling," he said, adding that the only beneficiaries are a few corporate and the Centre.

According to him, in the initial years, the value of tax was fixed at 16 per cent, but this is now down to 11 per cent.

In Kerala's case, the non-tax revenue has sharply declined from Rs 12,000 crore pre-GST to Rs 6,000 crore now, mostly due to the pandemic.

The total tax mop-up is down from Rs 95,000 crore to Rs 87,000-88,000 crore, he noted.

"What is more worrisome is that this decline in states' revenue is in spite of a rise in profit of companies even as overall consumption declined because consumers are not getting the promised tax benefits that GST promised.

"Why I say there is rampant GST leakage is because while there is growth in overall consumption and production and thus overall jump in tax collection, there is no commensurate growth in tax collection for the states," he said.

The finance minister also flagged that the Centre's claim that all the e-way bills are traceable is not factually correct, as there is a lot of tax leakages by way of both evasion and avoidance.

"The claim that no tax evasion is possible under GST is not correct; there is a lot of tax evasion taking place under GST and then there is also tax avoidance... There are plenty of goods coming to the market without paying any tax at all," the minister said and emphasised that rampant tax avoidance is clear from the fact that the tax-GDP ratio has not risen.

In FY21 at the national level, the tax-GDP ratio fell to 8.1 per cent from 9.2 per cent in FY20.

Between 1997 and 2021, it averaged at 7.3 per cent.

"If my memory is correct the tax-GDP ratio was over 12 per cent in the 1980s," he added.

Photograph: Courtesy Facebook page of CMIP