Thiruvananthapuram: Kerala Finance Minister KN Balagopal has called for systemic reforms to the GST structure, claiming that it has harmed every state and consumer because of its fundamentally faulty architecture, which has resulted in widespread income leakage.
In July 2017, the Goods and Services Tax (GST) system went into effect. Despite the framework’s concentration on a one-nation-one-tax approach, a number of commodities, such as petroleum products and liquor, remain outside of the GST’s jurisdiction.
‘The four years of the Goods and Services Tax (GST) regime has led to a steep 61 percent 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 the media during an interview in his Assembly chamber.
Balagopal, who took office in May after the LDF government led by Pinarayi Vijayan was re-elected, also claimed that Kerala’s total revenue has dropped by a third since the GST was implemented and called for radical changes to the four-year-old tax regime, but did not specify what those changes should be.
Balagopal had opposed GST as a Rajya Sabha member in 2015, claiming that it will intrude on the federal structure and take away most of the rights of states, particularly on the taxation front. He also sent a dissenting letter to the select committee investigating the proposed GST structure at the time.
‘We opposed it in principle even from the stage of the first draft bill,’ Balagopal said, adding that his and the party’s fundamental opposition to GST has not altered.
The Centre stated that goods traffic would be rapid and without obstacles and that customers would benefit from cheaper costs due to decreased taxes, but he pointed out that ‘unfortunately both are not met.’
‘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. The actual income of the states has been coming down. People also did not get any benefit as prices went up instead of falling,’ he said, adding that only people who benefit are a few corporations and the government.
According to him, the tax rate was set at 16 percent in the beginning, but it has now been reduced to 11 percent. Kerala’s non-tax revenue has plummeted from Rs 12,000 crore before the GST to Rs 6,000 crore today, owing mostly to the pandemic.
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He stated that the entire tax mop-up had decreased from Rs 95,000 crore to Rs 87-88,000 crore. ‘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,’ he said.
‘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.’
The Finance Minister also pointed out that the government’s assertion that all e-way invoices are traceable is untrue, as there are numerous revenue leakages through 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 the fact that the tax-to-GDP ratio has not increased indicates widespread tax evasion.
The national tax-to-GDP ratio decreased to 8.1 percent in FY21, down from 9.2 percent in FY20. It averaged 7.3 percent between 1997 and 2021. ‘If my memory is correct the tax-GDP ratio was over 12 percent in the 1980s,’ he added.
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