“ A STUDY ON GST AND ITS PROBABLE IMPACT ON THE SALES TAX REVENUE OF KERALA”

DECLARATION OF GRADUATE PROJECT PAPER AND COPYRIGHT

Author’s full name

: Benix Kanjiravila.T

Date of birth

: 10/05/1980

Title : “ A STUDY ON GST AND ITS IMPACT ON THE SALES TAX REVENUE OF KERALA”

I declare that this graduate project is classified as:

□ CONFIDENTIAL (Contains confidential information) □ RESTRICTED

(Contains restricted information as specified by the organisation where Research was done)

□ OPEN ACCESS

I agree that my graduate graduate project to be published as online open access (full text)

I acknowledged that NIFM reserves the right as follows: 1. The graduate project is the property of NIFM. 2. The NIFM library has the right to make copies cop ies for the purpose of academics/research. 3. The library has the right to make copies of the project for academic exchange research only.

Certified by:

Benix Kanjiravila .T

(Dr Pramod Kumar Pandey) Associate Professor NIFM, Faridabad.

Enrolment No. M201417 PGDM(FM)2014-16 Date:

1

“A STUDY ON GST AND ITS IMPACT ON THE SALES TAX REVENUE OF KERALA” KERALA” By BENIX KANJIRAVILA . T PROJECT REPORT

Under the Supervision of Dr. Pramod Kumar Pandey National Institute of Financial Management Management in Partial Partial Fulfilment Fulfilment of the Requirements Requirements for the Degree of POST GRADUATE DIPLOMA IN MANAGEMENT

(FINANCIAL MANAGEMENT)

Submitted at

NATIONAL INSTITUTE OF FINANCIAL MANAGEMENT (An institution of Ministry of Finance, Government of India) Faridabad May , 2016

2

DECLARATION I, Benix Kanjiravila.T, a participant of PGDM(Financial Management) 2014-16, hereby declare that the project report titled “ A STUDY ON GST AND ITS IMPACT ON THE SALES TAX REVENUE OF KERALA ”  which is submitted by me to the National Institute of Financial Management, Faridabad, Haryana, in partial fulfillment of the requirement for the award of the Post Graduate Diploma in Management (Financial Management), has not previously formed the  basis for the award of any Degree, D egree, Diploma, Associate ship, Fellowship or other similar title or recognition. This is to declare further that I have also fulfilled fulfilled the requirements of PGDM(FM) Guidelines for Project Report.

Place: NIFM, Place: NIFM, Faridabad

Benix Kanjiravila.T Participant PGDM (FM) 14-16

Date : October 16

3

CERTIFICATE On the basis of declaration submitted by Benix Kanjiravila.T, a participant of PGDM(FM) “ A STUDY ON GST AND ITS 2014-16, I hereby certify that the project report titled IMPACT ON THE SALES TAX REVENUE OF KERALA ” which is submitted to the  National Institute Of Financial Management (NIFM), Faridabad, Haryana, in partial fulfillment of the requirement for the award of the degree Post Graduate Diploma In Management (Financial Management), is an original contribution with existing knowledge and faithful record of project carried out by him under my guidance and supervision.

Place: NIFM, Faridabad

(Dr. Pramod Kumar Pandey)

Associate Professor (Accounting and Finance) Project Guide and Faculty

Date : October 16

Signature of Head of the Department

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Table of Contents Table of Contents ..................................................... .......................................................................................................... ..................................................................... ................ 1 1

Chapter –  I  I ................................................ ...................................................... ............................................................................ ...................... 10 1.1

2

1.1.1

Statement Statement of the Problem Problem .................................................... ................................................................................... ............................... 11

1.1.2

Objectives Objectives of the study......................................................................... .............. 12

1.1.3

Need and Significance Significance of the study ....................................................... ................................................................... ............ 12

1.2

Scope of Research Research ....................................................... ....................................................................................................... ................................................ 13

1.3

Limitations Limitations of the study ..................................................... ............................................................................................. ........................................ 14

Chapter -II ............................................... ...................................................... ............................................................................ ...................... 15 2.1

3

Literature Literature Review........................................................ ........................................................................................................ ................................................ 15

2.1.1

Definition Definition of GST ................................................. ................................................. 17

2.1.2

Relevance Relevance of GST ................................................. ................................................. 17

2.1.3

GST- International International perspective ........................................................................... 18

2.1.4

History of GST in India ...................................................... ..................................................................................... ............................... 18

2.1.5

GST Models .................................................. .................................................... ......................................................... ..... 19

2.1.6

Features Features of Proposed Proposed Indian Dual GST ................................................. ............ 20

2.1.7

Components Components of Total Revenue of Kerala state ........................................... 21

2.1.8

Shortcomings Shortcomings of prevailing prevailing tax system system in India ............................................... 22

CHAPTER CHAPTER III ...................................................................................... ............................... 23 3.1

4

Title of the study study ................................................. .................................................... ......................................................... ..... 11

Research Research Methodology Methodology................................................ ................................................. 23

3.1.1

Research Research Design .................................................. ................................................. 23

3.1.2

Sampling Sampling Techniques Techniques ................................................... ........................................ 24

3.1.3

Data Gathering Gathering Instruments Instruments .............................................. ............................... 24

3.1.4

Data Analysis Techniques Techniques ................................................... ............................... 24

Chapter IV ............................................... ...................................................... ............................................................................ ...................... 25 4.1

Introduction Introduction ............................................... ..................................................... ................................................................... .............. 25

4.2

Current Current Indirect Tax Tax structure in India ....................................................... ................................................................... ............ 25

4.3

Goods and Service Tax  –  Overview  Overview and Illustrations Illustrations............................................. 28

4.3.1

GST - Price Reduction in Intra- State supply .................................................... 29

4.3.2

GST - Price Reduction in Inter- State sale ......................................................... 31

5

4.4

Fate of Existing Taxes Taxes ................................................ ................................................. 32

4.5

Kerala Sales Tax Revenue Revenue ( Before Before and After After VAT regime) regime) ................................. 33

4.5.1

VAT collection ....................................................... ....................................................................................................... ................................................ 34

4.5.2

Non VAT collection collection .............................................. ................................................. 35

4.5.3

Total Tax Collection Collection ............................................................................................. ..................................................... ........................................ 36

4.6

Major Components Components of Total Tax Revenue of Kerala.......................................... 38

4.6.1

Beverages Beverages (liquor ) .................................................................................... ............ 38

4.6.2

Oil and Petroleum Petroleum Products .................................................. ............................... 39

4.6.3

Automobile Automobile Sector................................................ ................................................. 40

4.6.4

Sale Taxes from Gold and Bullion sector sector ............................................... ............ 41

4.6.5

Sales tax from Lottery Lottery .............................................................................. ............ 42

4.6.6

Central Central Sales Tax (CST)............................................... ........................................ 43

4.7

Sales Tax Revenue from Different Different Rates of Tax ............................................... ..... 44

4.8

GSDP and Sales Tax Revenue of Kerala  –  Future Trend Analysis.................... 46

4.8.1 Estimation of GSDP of Kerala - at current prices from 2015-2020 (Base Year 2011-12) ...................................................................................................................... 48 4.8.2 Estimation of All India GDP - at current prices from 2015-2020 (Base Year 2011-12) .................................................... .......................................................................................................... ............................................................................ ...................... 49 4.8.3 Estimation of VAT Revenue of Kerala - at current prices from 2015-2020 (Base Year 2011-12) ................................................... .................................................... ......................................................... ..... 50 4.8.4 Estimation of Non- VAT revenue of Kerala - at current prices from 20152020 (Base Year 2011-12) .................................................. ................................................. 52 4.9 5

Probable Probable Impact of GST on Sales Tax Revenue Revenue of Kerala ................................... 53

Chapter V ............................................... ...................................................... ............................................................................ ...................... 55 5.1

Important Important Findings ..................................................... ..................................................................................................... ................................................ 55

5.2

Recommendations Recommendations ................................................................................................... ..... 58

5.3

Conclusion Conclusion .................................................. ..................................................... ................................................................... .............. 60 References Appendices

6

List of Tables

........................................................... ........... 26 Table 1. Major Tax Revenue components of GOI ................................................ ........................................................................... .................................... .......... 28 Table 2. Central Tax Buoyancy ................................................. ........................................................ ............................ ... 28 Table 3. List of Countries with GST/ VAT Rates  ................................ .............................................................. 29 Table 4. Price Reduction in Intra- State supply  ............................................................... .................................................................. 31 Table 5. Price Reduction in Inter- State Sale  ................................................................... ..................................................................... ............... 34 Table 6. Sales Tax Collection Before VAT . ...................................................... .................................................................... .................... 34 Table 7. Trend of VAT collection in Kerala ................................................ ............................................................ ........... 35 Table 8. Trend of Non VAT collection in Kerala ................................................. ........................................................... ........... 36 Table 9. Trend of Total Tax collection in Kerala ................................................ ...................................................................... .................... 39 Table 10. Trend of Sales Tax from Liquor .................................................. Table 11.Trend of Sales Tax from Oil & Petroleum products  .......................................... 40

.................................................... .. 40 Table 12. Trend of Sales Tax from Automobile Sector .................................................. ......................................................................... ........................ 41 Table 13. Trend of Sales Tax from Gold ................................................. ..................................................................... .................... 42 Table 14. Trend of Sales Tax from Lottery ................................................. ........................................................................... ................................ ...... 43 Table 15. Centrlal Sales Tax Rates ................................................. ............................................................. ........... 44 Table 16. Trend of Central Sales Tax in Kerala .................................................. ............................................... 45 Table 17. Sales Tax Revenue from Different Rates of Tax ............................................... ................................................ 46 Table 18 . Trend of GSDP of Kerala (Base year 2004-05) ................................................ ................................................. 48 Table 19. Trend of GSDP of Kerala (Base year 2011-12) ................................................. Table 20.Forecasted GDP - at current prices from 2015-2020 (Base Year 2011-12)  .......... 50 Table 21.Estimation of VAT collection (Base year 2005-06)  ........................................... .......................................... 51

................................... 52 Table 22.Estimation of Non VAT collection (Base year 2005-06)  ....................................

7

List of Figures

......................................................................... ........................ 25 Figure 1. Current tax Structure in India ................................................. .......................................................... ... 27 Figure 2. Percentage wise Tax revenue in 2014-15  ........................................................ ............................... 37 Figure 3. Percentage of Non VAT collection in Total Tax collection  ................................ Figure 4. Percentage wise contribution of Major components of Total Tax Revenue . Error!

Bookmark not defined. Figure 5. Sales tax  –  Out  Out Put Tax due in the year 2015  .......... Error! Bookmark not defined. Figure 6 Comparison of growth rate of GSDP of Kerala and All india GDP(2004-13)  ...... 47

8

List of Illustrations

................................ 30 Illustration 1.Supply and re-supply of Goods /services in one State  ................................. ...................... 31 Illustration 2. Sale / Supply in one State and the resale in another State  ....................... Illustration 3.Sale or supply is outside the state and resale is within the State  .................. 32

9

Chapter –  Chapter –  I  I Introduction

Goods and Services Tax (GST) is a type of unified Value added Tax on goods and services which is levied at country level . Main objective of this new tax regime regime is to avoid multiple multiple taxation on same goods and services . Introduction of this destination destination based consumption tax will stimulate Indian industry and ensure its overall economic development and growth . Proposed GST will will act as as a fulcrum to reduce unemployment in the country . Both Central and State governments are levying tax on goods and services at different rates rates , have been created inefficiency in the tax system system . GST is expected to be to bring back efficiency in the tax tax system and it will restrict the leakages . Fiscal motives to implement the proposed GST shall be - i) To expand the fiscal space and to to improve economic viability of the government by way of increasing public expenditure under the targeted revenue constraints . ii) To eliminate the definitional separation between and services . iii) To achieve efficiency efficiency in tax system and to envisage the

goods

powers and

responsibilities of taxation authority . Introduction of FRBM Act 2003 in Indian Public financial system helped majority of states to improve Fiscal management . Under this act , States and UTs should achieve the revenue deficit target by zero percent (0%) and Fiscal deficit to be limited to three percent ( 3%) of GSDP . Majority of Indian Indian states were achieved their revenue deficit targets . At the same same time, Union government is not able to achieve both the targets . Reasons for

ineffective fiscal performance of Union government are continuous decline in

indirect tax revenue in GDP . Indirect Indirect tax buoyancy of prominent states was improved improved well above the level of Union government since 2008-09. Upcoming GST envisaged that central government will share their indirect tax buoyancy with state governments at predetermined rate and vice versa versa . This might be a win- win situation for all the parties of the tax system .

10

Both the central and state governments will will be benefited by increasing increasing revenue share and cost reduction in tax tax administration administration . Key objectives of proposed GST reforms are : i) Expanding the current tax base by including more economic services to the GST purview and shortening the list of exemptions ii) To avoid multi stage taxation and to achieve targeted tax compliance by minimizing additional tax  burden

iii) To enhance the competitiveness of Indian business firms

to the level of

International organizations by removing hidden taxes . iv) To establish a unique national market for various goods and services by unifying the tax rates and tax structure across the country . This project mainly focused to study the structure , features and expected challenges of  proposed GST

and also endeavors to forecast its probable impacts on the sales tax revenue

of Kerala. 1.1

Title of the study “A Study on proposed GST and its impact on the Sales Tax R evenue evenue of Kerala”

1.1.1

Statement of the Problem

Most of the Developed Developed and Developing nations were introduced GST , but India has initiated initiated its  preliminary constitutional procedure to implement GST on April 1, 2017 . Most of the Indian states are hesitated to agree the norms of GST because of confusion in revenue sharing  percentage from central tax buoyancy and of uncertainty about the compensation package from central Government against revenue loss . The research endeavors to to focus on understanding the conceptual frame work of goods and service tax and its probable impact on sales tax revenue of Kerala . Different approaches like like Production Production approach, Income approach and Expenditure approaches are using to calculate GDP/GSDP . This study study is using Expenditure approach as a basis . As per Expenditure approach, Gross Domestic Product is the summation (C), Investment(I) Investment(I) ,Government Expenditure (G) and import(X-M) 11

of Consumption

the difference difference between Export and

Y= C+I+G+(X-M)

This research is trying to derive GDP in terms of Total sales tax revenue of Government with reference to the proposed GST law

GSDP

= f (TR)

TR

= f (STR)

STR

= f (GST RATE)

Here GSDP - Gross Gross State Domestic Product TR

-

Total Tax Revenue

STR

-

Sales Tax Revenue

Other Variables like Non Tax Revenue, Public Expenditure etc are considered as proportionate effect on GSDP and not giving more importance in this study . 1.1.2

Objectives of the study

Main objectives of this Research is 1. To study the pattern of Sales Tax Revenue(VAT) in Kerala 2.

To study the pattern of Sales Tax Revenue(Non Rev enue(Non VAT) in Kerala

3.

To estimate the future trend of Sales Tax Revenue of Kerala

4. To estimate the variation in Central Sales Tax Revenue to Kerala 5 . To study the Probable impact of GST on the Sales Tax Revenue of Kerala 1.1.3

Need and Significance of the study

GST is is believed

to be a crucial tax reform reform after after independence

for stimulating economic

growth. Proposed GST will ensure the tax regime become simpler and provide higher the level of tax compliance . More over GST will

enhance sales tax revenues to Government ,

minimize the tax burden of end users and make imports / exports 12

business become

competitive.

The proposed thesis will give new insights , ideas , and information to to the

researcher as well as to the society . i)

At the time of Global economic turmoil , India must achieve

reasonable fiscal

consolidation and should maintain the targeted levels of both Fiscal and Revenue Deficits . A research carried out by CRISIL has been proposed that Goods and Sales Tax is the only one option

to achieve the expected Fiscal consolidation

As far as concern the Public expenditure , India like welfare nation has less scope to reduce its expenditure on welfare measures and social infrastructure . Hence the best option to achieve fiscal consolidation are by enhancing both the tax revenue and non tax revenue. ii)

Consumer states like Kerala , Bihar and Himachal pradesh are expected to be  benefit from the proposed

Goods

and Service

Tax

bill . It may

lead to an

expansion in the countries countries GDP by stimulating investment by eliminating cascading effect of taxes iii)

Most of the Indian states are in confusion, in in such a way that, whether it will will reduce their tax tax

revenue and whether they will get proper compensation from central

government against against revenue loss . iv)

This research trying to find out the answers to the following questions 

How GST will affect the Total sales tax revenue of Kerala and its impact on GSDP

1.2



Whether GST is Good for Consumer State like Kerala Kerala ?.



What are the Key challenges in GST ?.

Scope of Research

Scope of this research is limited to the proposed GST bill in India and its impact on the sales tax revenue of Kerala . Due to Time constraint the research has less scope to conduct a detailed study on various sales tax sectors , hence the research limited to the prominent and highly impacted sectors that is contributing more sales tax revenue to the Government .

13

1.3

Limitations of the study th

Lok Sabha officially passed Goods and Service Tax Bill- 2014, on 6

May 2015. Rajya

Sabha expected to be to pass this bill in the Monsoon session for the Financial year 2016-17. Hence uncertainty of the final recommendations and structure of GST is a key challenge to this research . This study conducted with certain assumptions based on the Model GST Law . This study relied mainly on secondary data hence data collection faced many difficulties. Due to time time and cost constraint , the the research research has less less scope scope to conduct a detailed study on overall sales tax sectors . Hence the research limited limited to the prominent and highly impacted sales tax sectors . Data dissemination of selected sectors from the aggregate aggregate data data consumed more time .

14

2 Chapter -II 2.1

Literature Review

Introduction

Central Government is expected to be

to implement a comprehensive tax regime called

Goods and Services Tax (GST ) from 1 April,2017. Proposed GST shall be a multi level extensive VAT which includes various goods and services.

Constitutionally authorized

taxation powers of both central and various state governments ensuring an economical and efficient tax system. system. Economists are believing believing Goods and Service Tax is the major indirect indirect tax tax reform in India after independence . This law ensuring the the government to impose tax on various Goods and Services at various levels of manufacturing , sales and distribution . Since 2005, Value Added Tax

has helped to eliminate hidden indirect taxes

and also it provided State

governments to achieve the targeted tax base expansion , high high level of tax compliance and augmented tax buoyancy .

It is believed that the proposed GST should completely eliminate hidden indirect taxes and will avoid double taxation taxation on various goods and services services at each level of production ,sales and distribution by way of input tax credit method . GST will facilitate a unique national market for various goods and services . GST regime shall provide unified tax rates across different states and thus by increasing the tax base . Common tax administration administration of Central and state governments will ensure effective tax compliance , minimum leakages of tax, and efficient tax coordination . Desired economic growth can be possible

by

attracting

more capital

infrastructure investments . Capital investors urging the favourable factors like elimination of double taxation and cascading effect of taxes, reduction in transaction costs associated with inter state sale of goods and services.

Implementation of GST will avoid cascading

effect of taxes and reduction in transaction costs which shall enhance India’s ranking in 1

World Banks ‘ ease of doing business’  .

1

 _ business  https://en.wikipedia.org/wiki/ Ease_of_doing   _index  Ease_of_doing  business 

15

Fiscal motives to implement the proposed GST shall be - i) To expand the fiscal space and to to improve economic viability of the governments by way of increasing public expenditure under the targeted revenue constraints . ii) To eliminate the definitional separation between and services . iii) To achieve efficiency in tax system system and to envisage the

goods

powers and

responsibilities of taxation authority . Introduction of FRBM Act 2003 in Indian Public financial system helped majority of states to improve Fiscal management . Under this act , States and UTs should should achieve the revenue deficit target by zero percent (0%) (0%) and fiscal fiscal deficit to be limited limited to to three percentage (3%) of GSDP . Majority of Indian states states were achieved their revenue revenue deficit targets . At the same time, Union government is not able to achieve both the targets . Reasons behind ineffective fiscal fiscal performance performance of Union government are continuous decline in indirect tax revenue and

in GDP . Indirect tax buoyancy of prominent states was improved

well above the level of Union government since 2008-09. Upcoming GST envisaged that central government will

share their indirect indirect tax buoyancy with state governments governments at

 predetermined rate and vice versa . This might be a win- win situation for all the parties of the tax system . Both the central and state governments will be benefited by increasing in revenue share and cost reduction in tax administration administration . Key objectives of proposed GST GST reforms are i) Expanding the current tax base by including more economic services to the GST purview and shortening the list of exemptions ii) To avoid multi stage taxation and to achieve targeted tax compliance by minimizing additional tax  burden

iii) To enhance the competitiveness of Indian business firms

to the level of

International organizations by removing hidden taxes . iv) To establish a unique national market for various goods and services by unifying the tax rates and tax structure irrespective of geographical differentiations.

This project mainly focused to study the structure , features and expected challenges of  proposed GST

and also endeavors to forecast its probable impacts on the sales tax revenue

of Kerala.

16

2.1.1

Definition of GST

According to Goods and Service Tax Bill  (GST Bill) , 2014 , “ Goods and Service Tax”

should be a comprehensive comprehensive indirect tax on manufacture manufacture , sale and

consumpti consumpti on of vari ous goods goods and ser ser vices thr oughout I ndi a , to r eplace exi exi sti ng taxes l evied by the 2 

centr centr al and state gover gover nments ”  .

Proposed GST shall be imposed and collected at various stages of production , sales and distribution of various goods and services based on input tax credit (ITC) method . ITC method will reimburse to prepaid taxes to registered business owners or adjusts the same from their current tax liability . This will help to avoid double taxation and completely eliminating cascading effect of taxes . According to New Article 366(12A) of the the Indian Constitution , defines “ Goods and Service Service Tax ” (GST) to mean “ any any kind of of tax imposed on supply supply of goods or services or both except taxes on the supply of the alcoholic liquor for human consumption ” 3 .

2.1.2

Relevance of GST nd

ICAI gives brief idea about GST and and its Benefits through their 2  conceptual paper on GST . Introduction of GST expected to be to bring drastic reforms reforms in tax laws which aimed to impose tax on various goods and services at manufacturing , sales and distribution . Various stake holders are likely to be benefitted by GST : (1) Trade benefits –  benefits  –  elimination   elimination of hidden indirect taxes , removal of multiple taxation , simplified and transparent tax regime . (2)Benefits to Government  –  are

simpler tax system ,

improved compliance and revenue collections ,

 broadening tax base, and also more investments from the savings by consumers which are obtained from the reduction of cascading effect of taxes . Finally (3) Benefit to Consumer are reduction in price of various goods and services by b y way of removal of double d ouble taxation tax ation and less transaction costs . It will enhance the

purchasing power . Also will increase the

savings of consumers due to the reduction of price of goods , and thus by drastic increase in investments which will boost the capital expenditure .

2 3

https://en.wikipedia.org/wiki/ Goods_and_Services  Goods_and_Services  Tax   _ Tax   _Bill   New Article 366(12A) of the Indian Constitution 17

2.1.3

GST- International perspective

Jeffrey Owens and Alain Charlet were giving insights about

VAT

in their article ‘ An

International Perspective on VAT’ . Wilhelm Von Siemens, a German businessman has put forward

the innovative idea of

the ‘ Father of Value Added Tax ’  Tax Administration Administration

VAT regime in 1920s . Maurice Laure , is considered as 4

regime who was the former Joint Director of the French

. In 1954 , France implemented implemented the VAT system system . In the the mid of 1960s ,

Senegal and Côte d’Ivoire were introduced VAT on Manufacturing Level . In 1965 , Brazil introduced a traditional VAT regime as a fiscal fiscal reform reform which applied at each and every stages of production. As of now , 140 countries have implemented

different models of VAT / GST

depends upon the country specific requirements . Developed countries those who are implemented VAT categorically divided into two based on the rates of VAT. Many of the EU countries are under first category and following differential rates . The second group consist Developed Nations like Singapore , Australia and Canada etc. They are following VAT with with  broad base and maintaining unified tax rates .Generally Developing countries are preferring single rate system . GST is the variant form of VAT . India India is also planning to implement broad  base GST with unified rates. 2.1.4

History of GST in India

In 2000, Prime minister Shri . A.B. Vajpayee initiated preliminary discussion on Goods and Service Tax (GST) by constituting an empowered committee headed by West Bengal Finance minister Shri . Asim Das gupta . It has assigned the responsibility to formulate a viable GST model and the blueprint of IT back end requirements for for its implementation . This initiative initiative is considered as the the beginning of tax law reforms on excise duty and sales tax at national national level . At the time of introduction of FRBM FRBM Act, Act, 2003 , Kelkar had suggested GST as an an advanced version of VAT . Shri P Chidambaram Chidambaram had mentioned mentioned

in his Budget speech for the financial

year 2006-07 about the need and relevance of GST law . The responsibility of preparing a Draft Report for the introduction of GST has given given to the Empowered committee of State Finance Ministers .

4

https://books.google.co.in/books?isbn=3709405025 Michael Lang,

18

,liutiP lauqP 4102 -uPh Ssoso

In 2008 , Empowered committee has submitted its preliminary report ‘ A model and Roadmap  for Goods and Services Tax (GST) in India ’  which includes recommendations about the structure and conceptual frame work of GST law . Department of

Revenue made some

suggestions that the committee should collect inputs from GoI and States and incorporate if th

any change required on this report . On 10

of November, 2009 , Empowered Committee

 published its first discussion d iscussion paper pap er on GST with specific purpose to create open debate on this law and thusby collecting inputs from various stake holders . Dr. Nandan Nilekani and his team of technocrats were started to develop the required IT infrastructure for GST administration.

5

st

UPA government aimed to introduce GST on 1  April, 2010. Opposition parties including BJP didn’t allow them to pass this Bill. Bill. Lok Sabha officially passed Goods and Service Tax Billth

2014, on 6

May 2015. Rajya Sabha expected to be to pass this bill in the Budget session for

the Financial year 2016-17. 2.1.5

GST Models

CA Mohit Singhal

discussing about various GST models in his article ‘ Indian Model of

Goods & Service Tax (GST) ’. Generally, GST consists three models:- Central GST(CGST), States GST-(SGST) and Dual GST - Non concurrent dual GST and Concurrent dual GST. CGST:  –  In this model , both national and sub national governments would combine their

taxes and levied at uniform rate at country level and have exists mutually agreeable portion of revenue sharing mechanism between them. In Central GST, Union Government will have the responsibility to levy and collect major portions of the countries tax revenue . State governments have little scope to impose tax on various goods goods and services . SGST :- Under SGST model , State governments alone have the responsibility to levy and collect GST and the Central Government

withdraws its authority from from imposing GST or VAT

completely . Central Government will cover its revenue loss loss due to the relinquishment of SGST taxable area governments

are

by way of using

SGST

adjusting its fiscal transfers to State Governments Governments . State to

improve

management . 5

 finmin.nic.in/ gst   /IT_Strategy_for_GST_ver0.85.pdf  gst 

19

their

revenue capacity as well as fiscal

Non- Concurrent Dual GST: In this model, GST on services can be imposed and collected

 by the Centre only and tax on goods by the respective state governments

only. State

Governments as of now has the authority to impose tax on sale and consumption of goods, and the Centre imposing tax on all services. In case of interstate services , should not need any special effort for levying a unified Centre tax . This Non current dual GST model would not acceptable to both the States as well as the the Centre. Hence, Central Government has shown its strong desire to implement Concurrent Dual GST Indian Model of GST  –  Concurrent  Concurrent Dual GST

Concurrent Dual GST comprises both Central GST and State GST and levied on common tax  base . Indian GST is an example ex ample of concurrent Dual GST. In this model GSt will be imposed and collected by both the governments simultaneously . State GST shall be regulated by state governments and CGST by Central Government.

All kind of goods and services without any

separation will be included under this proposed GST regime regime except few few exceptions. 2.1.6

Features of Proposed Indian Dual GST

Key Features of Proposed Indian Dual GST can be described by CA Mohit Singhal

in his

10

article ‘ Indian Model of Goods & Service Tax (GST) ’. Key features are

Single Registration :- An Unique Registration number can be allotted to each tax

 payer on the basis of their PAN . Tax can be identified , imposed and collected by using this PAN linked registration card . Additional three digits can be added to the existing PAN to identify registration for CGST and SGST mode of Uniform Method:  Net banking should be used for tax payments . Other mode  payment mechanisms is not allowed . Collection procedures of both CGST and SGST are almost similar except additional information on the tax payment challan of SGST can be paid through CGST challan and vice versa .

20

. Amount

One Common Return: Tax payer need to be file one common tax return for both

CGST and SGST . One coy of tax return should be given to the concerned State Tax Administration and second copy to be produced before Central Government Authority . online submission (e-filing) to to concerned authorities is highly appreciated. Classification of goods & services : Based on Harmonized System of Nomenclature

(HSN) Goods and Services can be classified for CGST and State GST. Administration: State Governments are responsible for collecting CGST on behalf

of central government from dealers whose gross turnover less than the threshold limit of Rs 1.5 crores under CENVAT and this amount should transfer to the Centre. By doing so , Centre can minimise the Administrative resources

and related expenses.

Threshold limit can be further categorised based on gross sales . ICAI gives broad broad idea about the threshold limit of GST . “ The amount from Rs.10 - 20 lacs can be allowed common for both goods and services . If total turn over of goods up to Rs. 1.5 crore exclusively assigned to State Government and Total turn over of services up to Rs. 1.5 crore can be assigned to Centre . If the total turn over above the threshold limit of  Rs. 1.5 crore can be assigned to both Centre and State for the administration of 6 

CGST and SGST respectively” respectively” . 2.1.7

Components of Total Revenue of Kerala state

‘ Kerala Development Report’ published by Planning commission of India specifically referring referring composition of the revenue revenue structure structure of Kerala. Tax Revenues and Non tax revenues revenues are are key components of the Total revenue of State Governments and of which tax revenue contributes more. In Kerala , Revenue structure composed of both States Non Tax Revenue and Tax revenue . State's Own Taxes are levied, collected and utilized by the state governments. Share of Central Taxes means share of taxes, which are imposed and collected

by the Central

Government . Even though , Central Government Government transfers proportionate amount to States.  Non tax revenue collected by the State Government and Grant in aid from the Central government to the State are included in the States Total Non tax revenue . Total share of 6

www.gstindia.com/ goods-and-service  goods-and-service -tax-a-detailed-explanation-with-examples-2/ 

21

States Own Tax revenue in Total Tax Revenue of Kerala has been increased from 77.08 % in 1980-81 to 91.88 % in 2003-04 where as the corresponding growth growth in other states is 66.95% and 79.84% respectively . Growth in Kerala's sales tax revenue over the last two decades in relation to to own tax revenue and its total tax revenue has been limited to a narrow 12% to 14%  band, indicating

that the full potential of this important source of revenue has not been

exploited. In 2003-04, tax on services services and commodities commodities were were contributed contributed 84.58% among tax 7

revenue sources . Out of this 67.9% 6 7.9% were from sales tax  .

2.1.8

Shortcomings of prevailing tax system in India

Shri . Satya poddar and

Ehtisham Ahmad

were

 prevailing tax system in India in their working paper Considerations in India’  . According to Bagchi Report

discussing about

shortcomings

of

‘ GST GST Reforms and Intergovernmental tax regime prevailed before the

current system as “ complex and irrational ”. Shortcomings of the prevailing tax system are multiple taxation taxation at Manufacturing level , Exclusion of various services , Cascading Effect Effect of Taxes and complexity of the Tax Tax procedures .

7

www.nipfp.org.in/.../9.%20Part%202%20-%20 State  %20Finances%20In%20Kerala.pdf... by  by RR AIYAR 

22

3 CHAPTER III 3.1

Research Methodology Methodology

Introduction

Taxes are the major sources sources of revenue to the Government . It is important the tax regime regime is framed in such a way that it does not become a source of manipulation in the market or result in market failures. The tax tax laws should be such that they generate required amount of revenue in an efficient, effective and equitable manner. 3.1.1

Research Design

The researcher studied

the structure , procedure and various legal provisions /regulations

incorporated with GST . Researcher studied and analyzed various GST models followed by other countries to get an overview about GST and to identify the critical barriers in achieving a economical and effective tax system in the Indian economy . The researcher followed the explanatory study method. The following sequence was followed for for the study: Phase I. The researcher carried out the the document analysis to understand the prevailing

Tax system in India .

The generic pattern pattern of the GST model in other developing

countries, further helped in analyzing the barriers to robust and effective GST implementation in India. sub committee - II II on model GST law was critically studied to Phase II. Report of sub understand the complex procedure of levy and collection of tax, input tax credit and its administration . Reports of various countries those who are successfully implemented have studied . These reports have provided a vivid picture picture of the features features of GST , Benefits and challenges of GST .These reviews helped to formulate a model to estimate the impact of proposed GST on sales tax revenue of Kerala . critical analysis of the the trend in sales sales tax tax revenue of Kerala Kerala and projected Phase III. A critical sales tax revenue

based on assumed GST rates

was undertaken to understand its

expected impact on the sales tax revenue of Kerala . The hypothetical rates can be used to calculate the probable impact impact on various sectors sectors in Kerala . Study helped to identify 23

the strategical policy

to make GST an effective tool in Kerala in order to achieve

higher GSDP. Phase IV. Interview of key informants and economists were employed to confirm the

critical barriers and also to arrive at viable policy and strategy recommendations. 3.1.2

Sampling Techniques

The selected topic does not provide the scope to carry out a survey or like wise qualitative study about the Sales tax revenue of Kerala from various sectors . This study mainly depends up on secondary data. Hence readily available data on Budget documents of Kerala , model GST law ,and other relevant documents from various sources used as the basis of study. study. 3.1.3

Data Gathering Instruments

Documents sourced out from the official web sites of the Government of India and the Budget documents of Kerala . Data on GST was also collected from from textbooks, journals, and other  published researches.

Interview given by various

experts , economists and other officials

helped the researcher to get insightful knowledge and to identify the critical barriers of GST and methods to mitigate them. them. This interaction helped the researcher to gather more knowledge about Kerala economy and its expected impact on Sales tax revenue revenue due to Goods and Service Tax . 3.1.4

Data Analysis Techniques

Structure and future trend of the Sales tax revenue of Kerala is studied by using the conventional methods like percentages, growth rates, ratios , elasticities, ranking, etc. Tax elasticity of the state is calculated with respect to the Gross State Domestic Product (GSDP) at current prices.

24

4 Chapter IV Data Analysis

4.1

Introduction

Mainly this chapter focused on the presentation and analysis analysis of data obtained from from the key informant interviews and

study

conducted by organizations like Institute of

Chartered

Accounts of India , Commercial Tax department of Kerala and other research organizations Data available in the Government websites and the Key informant interviews have been used to validate the observations . 4.2

Current Indirect Tax structure in India

In India , current indirect tax structure mainly comprises Customs Duty, Excise Duty , Service tax ,Sales tax (CST/VAT) and Entertainment tax / Entry tax. Figure 1. Current tax Structure in India

Current tax structure

Customs Duty

Excise Duty

Service tax

Sales tax / VAT /CST

Entertainmen t tax/Entry

Taxable event is

Taxable event is

Taxable event is

Taxable event is

Taxable

event

Export & Import

Manufacturing

Provision of service

Sale of goods

Entry of Goods & Entertainment

Source : Prepared by Researcher 25

is

We can see the Total Tax revenue components of Government of India

Table 1. Major Tax Revenue components of GOI

Tax Revenue

(in crores )

year

Tax Revenue categories corporation tax Taxes on Income Wealth tax customs

2013-14 394677.85

2014-15 428924.7

Growth % 8.67

242856.96 1007.87 172085.42

265732.9 1086.21 188016.2

9.42 7.77 9.25

Union Excise Duties Service tax

170196.94 154778.12

188787.3 167969

10.92 8.52

0.75

1164.43

155157

3129.83

3203.75

2.36

1138733.74

1244884.53

9.32

other taxes and duties on commodities Taxes of union territories Total tax revenue

Source : Union Budget of India

Customs duty : Customs duty can be imposed on the transactions of Exports and imports .

This tariff can be levied and collected for regulating

the international transactions of

Goods, animals , and other hazardous items . In In 2013-14, Total customs duty revenue was Rs. 172085 cr. In 2014-15 , customs duty revenue has attained 9.25% growth and reported an amount of Rs. 188016.2 cr. Corporation tax : Corporation tax can be levied on companies on their business income as

 per Income Tax Act ,1961.

In 2014-15 , Corporation tax revenue has achieved

growth against previous years (2013-14) revenue of Rs 394677.85 cr.

26

8.67 %

Union Exise Duties : Customs duties are levied as border taxes . Excise duties are imposed on

goods manufactured for inland sale . Taxable event is the point of manufacturing . In 2013-14, Total Excise duty revenue was

Rs. 170196.94 cr. In 2014-15 , Excise duty revenue has

attained 9.25% growth and reported an amount of Rs. 188787.3cr. Service Tax : Service Tax is a tax levied by Union government on provision of services .

Service tax should not be levy on the services mentioned in the Negative Negative list . Service tax revenue has gone up from Rs. 154778.12 cr in 2013-14 to Rs. 167969 cr in 2014-15.

Figure 2. Percentage wise Tax revenue in 2014-15 2014-15 other taxes and duties on commodities 0%

Total Tax revenue Components

Taxes of union territorie s 0%

Service tax 14%

Union Excise Duties 15%

corporation tax 35% customs 15%

Taxes on Income 21%

Wealth tax 0%

Source : Prepared by Researcher , based on the data on Budget documents of GOI

Tax Buoyancy

Tax Buoyancy is a leading indicator to measure the responsiveness of Tax Revenue in connection with the growth of Gross Domestic Domestic Product / National Income . Increasing trend in implied tax buoyancy is due to the increase in national income and the reforms in in tax policies policies . Implementation of GST will increase the implied tax buoyancy . Economists are believing that GST will contribute contribute multifold increase in implied tax buoyancy in in both the Direct tax and Indirect tax .

27

Table 2. Central Tax Tax Buoyancy Buoyancy

Tax Buoyancy Revenue growth Base Growth DT IDT 15.1 18.5 25.8 11.4 13.5 4.1 12.7 8.2 8

Year

2012-13 2013-14 2014-15 Average 201215 13.1 13.4 12.6 Source :Estimation of tax buoyancies by MoF

Implied Buoyancy DT IDT 1.2 1.7 1.2 0.4 0.6 0.6 1

1.4

Tax Buoyancy establishes the relationship between the changes in tax revenue growth and changes in GDP . Average Base growth from 2012 to 2015 is 13.1% and Direct tax growth is 13.4% and Indirect tax Growth is 12.6% . Implied Implied Tax Buoyancy of Direct Tax and Indirect Tax is 1 and 1.4 respectively . 4.3

Goods and Service Tax  – Overview and Illustrations

Indian business system is eagerly waiting for new tax system . All the stake holders of the economic system will be benefitted by GST regime . This destination based tax regime will treat the whole nation as a single market . Rate of proposed

GST is under discussion . GST

council will decide the framework after the amendments proposed by Rajya Sabha . We are assuming the upper band of GST rate might be 18%. GST /VAT rates rates of various Developed and Developing countries are shown below . Table 3. List of Countries Countries with GST/ VAT Rates

Sl no 1 2 3 4 5 6 7

Country Japan Germany France Australia USA Denmark United Kingdom 28

Rate of GST/VAT 10% 19% 20% 10% 11.725% 25% 20%

8 9 10 11 12 13 14 15 16 17 18 19 20 21

Singapore Swedan Peru Portugal Italy Ireland Netherlands Norway New Zealand Israel Russia China Pakistan India

7% 25% 18% 23% 22% 23% 21% 25% 15% 17% 18% 17% 17% 14.5%

Source : https://en.wikipedia.org.

4.3.1

GST - Price Reduction in Intra- State supply

Let us consider the price reduction in Intra –  Intra – State State supply where the commodities are transferred from one place to to other within the state. Assumed rate rate of CGST is 9% and SGST is 9% . Calculations based on the prevailing tax rates and assumed GST rates will reveal the efficiency of the GST regime

Table 4. Price Reduction in Intra- State supply

Price Reduction in Intra- State supply Current Scenario 1000

GST Scenario 1000

Total VAT @12.5 % on

160 1160 145

0 1000 0

Total

1305

1000

CGST @ 9% (Rate is assumed )

0

90

Particulars Value of Goods Excise Duty @16%

29

SGST @ 9% (Rate is assumed ) Total Total Indirect Taxes in this transaction Price Reduction

0 1305

90 1180

305

180 Rs.125

Source : Prepared by Researcher

In the above example , an amount amount of Rs. 125 has reduced from the normal tax regime regime . This  price reduction will reduce the inflation and ensure the price stability . Benefits of the GST regime will be equally distributed either indirectly indirectly or directly directly to the various stake holders .

Illustration 1.Supply and re-supply of Goods /services in one State

Let us consider consider the scenario of supply and re-supply re-supply of Goods /services in one State State . Assume the rate of tax is 9% . The movement of goods is from Calicut C alicut to Kochi and Kochi to Trivandrum In Calicut to Kochi transaction : 9% SGST

- this tax revenue will go to State government

: 9% CGST - this tax revenue will go to Central government

In Kochi to Trivandrum transaction : (1) Calculating Calculating 9% SGST on value including the profit margin payable to State Government . But State government will get the revenue amount after deducting input tax credit already already paid Kochi dealer from SGST (2)Calculating 9% CGST on value including the profit profit margin payable to Central Government. But Central government will get the revenue amount after after deducting input tax credit already  paid Kochi dealer from CGST Like wise by the Trivandrum dealer, when he will sale the commodities to the end user / customer effect the same .

30

4.3.2

GST - Price Reduction in Inter- State sale

We can calculate the expected price reduction in Inter –  Inter – State State supply where the commodities are transferred

from one State to other. Assumed rate of IGST is 18% . Calculations based

on the prevailing tax rates and assumed IGST rates rates will reveal the efficiency efficiency of the GST regime in the State border transactions transactions . Table 5. Price Reduction in Inter- State Sale

Price Reduction in Inter- State Sale Particulars

Current Scenario

GST Scenario

1000

1000

160 1160

0 1000

23.2 1183.2

0 1000

0 1183.2

1180 1180

183.2

180

Value of Goods Excise Duty @16% Total CST @ 2 % on Total IGST @ 18% (Rate is assumed ) Total Total Indirect Taxes in this transaction Price Reduction

Rs. 3.2

Source : Prepared by Researcher

Here a price reduction reduction of Rs. 3.2 will creates creates and treats the whole nation as a Single Single Market . Transportation of Goods from nearby States becomes cheaper .

This will create business

friendly atmosphere . We can avoid the situations of tax evasion by the firms and also we can reduce the rate of leakage of taxes . Illustration 2. Sale / Supply in one State and the resale in another State

Assuming IGST rate is 18% . CGST and SGST rates rates are 9% . The movement is from Kochi to Calicut and then Calicut to Bangalore .

31

In Kochi to Calicut transaction : 9% SGST

- this tax revenue will go to State government

: 9% CGST - this tax revenue will go to Central Government In Calicut to Bangalore transaction : 18% IGST - will go to Central Government . But it will go after deducting the SGST and CGST credits . In such cases exporting states states like Kerala should compensate to Central Government by transferring an amount which is equivalent to SGST –  SGST – credit credit to the Central government . Illustration 3.Sale or supply is outside the state and resale is within the State

Transaction from Nager coil (Tamil Nadu) to Trivandrum and then Trivandrum to Kochi In Nager coil to Trivandrum supply : IGST 18% will go to Central Government In Trivandrum to Kochi supply : : SGST 9% and CGST 9% has to be collected by the Trivandrum dealer : SGST 9% will go to State Government after availing credit of IGST paid 4.4

Fate of Existing Taxes

Various taxes levied and collected collected by Central government and State

Government will be

subsumed in the Proposed GST regime . The following following prevailing taxes may be subsumed from from State Sector

1. Value Added Tax / Sales tax 2. Central Sales tax (levied by Central and collected by States ) 3. Entertainment tax (other than the tax levied and collected by local bodies ) 4. Luxury tax 5. Octroi and Entry tax 6. Purchase tax 7. Taxes on lottery 8. Betting & Gambling 32

9. State surcharges and cesses related to supply of goods

Prevailing taxes are proposed to to be kept outside the GST regime from State sector 1. Petroleum crude 2. High speed diesel 3. Motor Spirit (Petrol) 4.  Natural gas 5. Aviation turbine fuel 6. Tobacco & Tobacco products 7. Alcoholic liquor for human consumption

Following taxes are levied and collected by Central government is expected to be subsumed in the GST regime

1. Central Excise Duty 2. Additional Excise duty 3. Service tax 4. Excise duty levied under Medicinal and Toilet Preparation s (Excise Duties ) Act ,1955 5. Additional Custom duty (AVD) 6. Special Additional Duty of Custom (SAD) 7. Central Surcharges & cesses related to supply of Goods 4.5

Kerala Sales Tax Revenue ( Before and After VAT regime)

Service sector is the dominating sector in

Kerala economy

. Manufacturing Industry has

given less contribution contribution to its GSDP . Economy depends upon foreign remittances . We can call Kerala State as ‘ Consumer Economy ’. ’. Major source source of Own Tax revenue is Sales tax Revenue . Sales tax revenue growth before the introduction of VAT in 2005 is shown below .

33

Table 6. Sales Tax Collection Before Before VAT

Sales Tax Collection Before VAT (4 years ) Rs in crores Year Amount Growth % 2001-02 4,676.18 2002-03 5,380.63 15.06 2003-04 6,081.13 13.01 2004-05 6,797.42 11.77 Average 5733.84 13.28 Source : Department of Commercial Taxes , Kerala

If we consider four years years Sale tax revenue before the introduction introduction of VAT regime , Sales tax revenue has increased from Rs.4676.18 cr to Rs.6797.42 cr. Sales tax revenue increased annually with average amount of Rs. 5733.84 cr and with average growth rate rate of 13.28% . After introduction of

VAT in 2005 , Sales tax revenue of

Kerala has

divided

as

two

components VAT collection and Non VAT VAT collection . Let us examine the growth of VAT collection and Non VAT collection from 2005-06 to 2014-15 4.5.1

VAT collection

Sales tax levied and collected by State Government under VAT Act . Table 7. Trend of VAT collection in Kerala

VAT collection

Rs in crores Year 2005-06 2006-07 2007-08 2008-09 2009-10

Amount 3321.98 4482.12 5132.06 6073.88 6950.6

34

Growth % 34.92 14.5 18.35 14.43

2010-11 2011-12 2012-13 2013-14 2014-15 Average

8395.54 10055.19 12616.95 13860.96 15075.49 8596.47

20.78 19.76 25.47 9.86 8.76 18.53

Source : Prepared by Researcher , based on the data from Department of Commercial Taxes, Kerala VAT collection increased from Rs.3321.98 cr in 2005-06 to Rs. 15075.49 cr in 2014-15. In the  period of 2013-15, VAT collection growth rate drastically fell down from the average growth rate of 18.53%. In 2013-14 , growth rate is 9.86% and in 2014-15 is 8.76%. State government should examine seriously about the vertical fall fall of VAT collection collection . 4.5.2

Non VAT collection

Sales taxes levied and collected by State Government which is kept outside outside the VAT regime regime .Normally , such kind of taxes have been included as Non VAT collection . Non VAT rates are differing from states to states . In Kerala , commodities and its tax rates are fixed as per the KGST rules ,1963.

Table 8. Trend of Non VAT collection collection in Kerala

Non- VAT collection Rs in crores

Year

Amount

Growth %

2005-06

3661.27

2006-07

4204.71

14.84

2007-08

4553.28

8.29

2008-09

5497.54

20.73

2009-10 2010-11 2011-12

6249.59 7760.39 9255.35

13.68 24.17 19.26

35

2012-13 2013-14 2014-15

10268.88 11515.29 12795.4

10.95 12.13 11.11

Average

7576.17

15.01

Source : Prepared by Researcher , based on the data from Department of Commercial Taxes, Kerala  Non - VAT collection increased from Rs.3661.27 cr in 2005-06 to Rs. 12795.4 cr in 2014-15. In the period of 2012-15, Non VAT collection growth rate drastically fell down from the average growth rate of 15.01 %. In 2013-14 , growth rate is 12.13% and in 2014-15 is 11.11%. State government should examine seriously about the diminishing trend

of

Non

VAT

collection . 4.5.3

Total Tax Collection

Before 2005, sales tax has levied on the sales value of the Goods at each stage and not considered the value addition . Tax rates are differ from States to States . In Kerala , ‘ The Kerala General Sales Tax Rules ,1963 ’ derived the Schedule of commodities and the corresponding tax rates. After After 2005 , Total Tax collection means the sum of VAT collection and NonNon- VAT collection. VAT collection is based on VAT Rules and Non VAT collection based on KGST rules .

Table 9. Trend of Total Tax Tax collection in Kerala

Total Tax collection Rs in crores year

VAT

NonVAT Total Tax

Growth %

2005-06

3321.98

3661.27

6983.25

2006-07

4482.12

4204.71

8686.83

24.39

2007-08

5132.06

4553.28

9685.34

11.49

2008-09

6073.88

5497.54

11571.42

19.47

2009-10

6950.6

6249.59

13200.19

14.07

2010-11

8395.54

7760.39

16155.93

22.39

2011-12

10055.19

9255.35

19310.54

19.52

2012-13

12616.95

10268.88

22885.83

18.51

36

2013-14

13860.96

11515.29

25376.25

10.88

2014-15

15075.49

12795.4

27870.89

9.83

16172.65

16.72

Average

Source : Prepared by Researcher , based on the data data from Department of Commercial Taxes, Kerala Total Tax collection increased from Rs.6983.25 cr. in 2005-06 to Rs. 27870.89 cr in 2014-15. In the period of 2013-15, Total Tax collection growth rate drastically fell down from the average growth rate of 16.72 %. In 2013-14 , growth rate is 10.88 % and in 2014-15 is 9.83%. This Vertical fall in Total Tax collection will affect the economy adversely . Remedial measures to be taken to avoid Tax leakages . We already calculated the Average Total tax revenue of Kerala for the period 2001-02 to 2004-05

Before the introduction of VAT regime , Sales tax revenue has increased from

Rs.4676.18 cr in 2001-02 to Rs.6797.42 cr in 2004-.05 Sales tax revenue increased annually with average amount of Rs. 5733.84 cr and with average growth rate rate of 13.28% . We can say the Average growth rate of Sales tax revenue revenue after VAT regime has improved from from 13.28% in in 2004-05 to 16.72% in 2014-15. Figure 3. Percentage of Non VAT collection in Total Tax collection

Total tax Collection (2014-15) Non VAT VAT collection collection 46% 54%

Source : Prepared by Researcher on the basis of data from Department of Commercial taxes

37

In Total tax collection , contribution of VAT collection and Non VAT collection is 54% and 46% respectively respectively . Major portions of commodities providing Non VAT collection collection is expected to be exclude from the ambit of GST. It is better for the consumer states like Kerala . 4.6

Major Components of Total Tax Revenue of Kerala Keral a

Major sources of Sales tax revenue are from Beverages (Liquor) , Oil and Petroleum products , Automobile sector , Lottery and Gold etc . In In addition to this, this, State Government is eligible to get CST for interstate transactions of Goods . Total tax revenue in the Financial Year 201415 is Rs. 27870.89 cr. Figure 4. Percentage wise contribution of Major components of of Total Tax Revenue

Total Tax Revenue (2014-15) Beverages (Liquor ) 21% Taxes from other sectors 50% Oil and Petroleum products 18% CST 1%

Lottery 1%

Automobile 8%

Gold 1%

Source : Prepared by Researcher on the basis of data from Department of Commercial Commercial taxes

4.6.1

Beverages (liquor )

Kerala State Beverages Corporation (KSBC) Ltd was formed in 1984. Head office of KSBC located at Sasthamangalam in Trivandrum district. KSBC

has

338 FL1 shops and 22

warehouses in various part of Kerala . Contribution from Beverages (Liquor ) sector is almost 21% of the Total tax revenue of Kerala .

38

Table 10. Trend of Sales Tax from Liquor

Beverages (Liquor) Rs in crores

Year

Amount

Growth %

2005-06

1427.59

2006-07

1681.3

17.77

2007-08

1997.61

18.81

2008-09

2503.77

25.33

2009-10

2984.9

19.21

2010-11

3775.04

26.47

2011-12

4740.74

25.58

2012-13

5391.48

13.72

2013-14

5830.12

8.13

2014-15

6685.84

14.67

Average

3701.83

18.85

Source : Prepared by Researcher on the basis of data from Department of Commercial Commercial taxes

Sales Tax collection from Beverages (liquor )sector increased from Rs.1427.59 cr. in 2005-06 to Rs. 6685.84 cr in 2014-15. In the period of 2012-15, Sales Tax collection growth rate drastically

fell down from the

average growth rate of 18.85 %.

is13.72%

,and in 2013-15 growth rate is 8.13 %

In 2012-13 growth growth rate

and in 2014-15 is 14.67%. Remedial

measures to be taken to avoid Tax leakages . Changes in State Liquor Policy will have the impact on the sales tax revenue from this sector . 4.6.2

Oil and Petroleum Products

Revenue contribution from Oil and Petroleum products sector is almost 18 % of tax revenue of Kerala .

39

the Total

Table 11.Trend of Sales Tax from Oil & Petroleum products

Sales tax revenue from Oil and Petroleum Products Rs in crores year Amount Growth % 2005-06 2028.88 2006-07 2337.88 15.23 2007-08 2341.29 0.14 2008-09 2670.01 14.04 2009-10 2903.19 8.73 2010-11 3550.52 22.29 2011-12 4109.24 15.73 2012-13 4527.67 10.18 2013-14 5158.64 13.93 2014-15 5593.07 8.42 Average 3522.03 12.07 Source : Prepared by Researcher on the basis of data from Department of Commercial Commercial taxes

Sales Tax collection from Oil and Petroleum products sector increased from Rs.2028.88 cr. in 2005-06 to Rs. 5593.07

cr in 2014-15. During this period (2005-15) , an average growth

acquired in tax revenue from this sector to the tune of Rs. 3522.03cr . In 2013-15, growth rate is 13.93 %

and in 2014-15 is 8.42 %. When compared with the average growth rate of

12.07% the growth growth rate in 2014-15 is far below the Benchmark . 4.6.3

Automobile Sector

Revenue contribution from Automobile sector is almost 8 % of the Total tax revenue of Kerala . Table 12. Trend of Sales Tax from Automobile Sector

year 2005-06 2006-07 2007-08 2008-09

Automobile Rs in crores Amount Growth % 560.06 792.13 41.43 816.47 3.07 712.94 -12.68 40

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Average

829.5 1584.24 1865.45 2329.59 2446.88 2347.8 1428.05

16.34 90.98 17.75 24.88 5.03 -4.04 20.30

Source : Prepared by Researcher on the basis of data from Department of Commercial taxes

Sales Tax collection from Automobile sector increased from Rs.560.06 cr. in 2005-06 to Rs. 2347.8 cr in 2014-15. During this period (2005-15) , an average growth acquired in tax

revenue from this sector to the tune of Rs. 1428.05 cr . In 2013-15, growth rate is 5.03 % and in 2014-15 reported a negative growth rate of - 4.04 %. When compared with the average growth rate of 20.3% the growth rate in 2013-15 is worse than ever . This Vertical fall in Automobile Tax collection will affect affect the economy adversely . Remedial measures measures to be taken to avoid Tax leakages . 4.6.4

Sale Taxes from Gold and Bullion sector

Revenue contribution from Gold Merchandise sector is nearly 1 % of the Total tax revenue of Kerala . Table 13. Trend of Sales Tax from Gold

year

Gold Rs in crores Amount Growth %

2005-06

21.21

2006-07

97.9

361.57

2007-08 2008-09

120.93 143.51

23.52 18.67

2009-10 2010-11 2011-12 2012-13

163.04 225.4 302.2 393.54

13.6 38.24 34.07 30.22

2013-14 2014-15 Average

471.53 456.76 239.6

19.81 -3.13 59.61

Source : Prepared by Researcher on the basis of data from Department of Commercial Commercial taxes 41

Sales Tax collection from Gold Merchandise sector is increased from Rs.21.21 cr. in 2005-06 to Rs. 456.76 cr in 2014-15. During this period (2005-15) , an average growth acquired in tax revenue from this sector to the tune of Rs. 239.6 cr . In 2013-15, growth rate is 19.81 % and in 2014-15 reported a negative growth rate of - 3.13 %. When compared with the average growth rate of 59.61 % the growth rate in 2013-15 is worse than ever . This Vertical fall in Gold sales tax collection to be examined by the respective respective Authorities . Remedial measures to  be taken to avoid tax evasion and leakages from Gold and Bullion sector . 4.6.5

Sales tax from Lottery

Revenue contribution from Lottery sales is nearly 1 % of the Total tax revenue of Kerala .

Table 14. Trend of Sales Tax from Lottery

Lottery Rs in crores year Amount Growth % 2005-06 47.24 2006-07 60.62 28.32 2007-08 94.85 56.46 2008-09 95.21 0.38 2009-10 106.04 11.37 2010-11 47.26 -55.43 2011-12 67.4 42.61 2012-13 94.25 39.83 2013-14 112.2 19.04 2014-15 198.1 76.56 Average 92.31 24.34 Source : Prepared by Researcher on the basis of data from Department of Commercial Commercial taxes

Sales Tax collection from Lottery is increased from Rs. 47.24 cr. in 2005-06 to Rs. 198.1 cr in 2014-15. During this period (2005-15) , an average growth acquired in tax revenue from this sector to the tune of Rs. 92.31 cr . In 2013-15, growth rate is 19.04 % and in 2014-15 reported the growth rate of 76.56 %. When compared with the average growth rate of 24.34 % the growth rate in 2013-15 is better than ever . Taxes on lotteries are expected to be

42

subsumed in GST. This will affect the revenue of State Government . State Government should share the revenue with Central Central Government at CGST rates . 4.6.6

Central Sales Tax (CST)

Central Sales Tax is levied and collected on inter state state transactions . State governments governments are not allowed to levy tax on Inter State trade . CST rates will vary continuously with changes in situations and category of Goods . The following table will give idea about CST rates Table 15. Centrlal Sales Tax Rates

Nature of Goods

Sale to Government on Submission of Form D

Sale to registered Dealer on submission of Form C

Declared Goods

VAT or 4 % ( lower rate considered )

VAT or 4 % ( lower rate considered )

Two times of VAT rate ( 2* VAT)

VAT or 4 % ( lower rate considered )

10 % or VAT rate of State ( which ever lower is applicable )

Other Goods

VAT or 4 % ( lower rate considered )

Sale in any other cases

Source : Prepared by Researcher

Kerala is one of the major Consumer State in India . It depends upon Other States for essential commodities like like Vegetables , Rice , Grocery items and Meat etc . These commodities are coming from Tamil Nadu, Karnataka Karnataka and Andhra Pradesh Pradesh .etc. .etc. Revenue contribution from CST is nearly 1 % of the Total tax revenue of Kerala.

43

Table 16. Trend of Central Sales Tax in Kerala

CST

year

Rs in crores Growth % Amount

2005-06

486.36

2006-07

339.66

-30.16

2007-08

222.6

-34.46

2008-09

225.52

1.31

2009-10

223.43

-0.92

2010-11

231.27

3.5

2011-12

258.96

11.97

2012-13

306.58

18.38

2013-14

302.96

-1.18

2014-15

310.99

2.65

Average

290.83

-3.21

Source : Prepared by Researcher on the basis of data from Department of Commercial taxes

Central Sales Tax collection is decreased from Rs. 486.36 cr. in 2005-06 to Rs. 310.99 cr in 2014-15. During this period (2005-15) , an average growth acquired in tax revenue revenue from CST is to the tune of Rs. 290.83 cr . In 2013-14, growth rate is -1.18 % and in 2014-15 reported the growth rate of 2.65 %. During this Period (2005-15) reported an average growth rate of -3.21% . CST is is expected to be subsumed in GST . IGST will be levied

for inter State

transactions .This will will affect the revenue of State Government . State Government will get a share of revenue from Central Government at SGST rates . 4.7

Sales Tax Revenue from Different Rates of Tax

Let us examine the Taxable turn over and Out put tax due in various various Rates in the year 2015 . GST rate is expected to be an upper limit of 18%.

44

Table 17. Sales Tax Revenue from Different Rates of Tax

2015

RATE OF TAX More than 18% Between 14% to 18% Between 5% to 14% Between 0.5% to 5% Rate = 0% TOTAL

(Rs. In Crores )

TAXABLE TURNOVER 7577.61 114782.17 150586.06 22290.12 16100.21 311336.17

OUTPUT TAX DUE 1878.36 15744.58 6790.05 216.17 0.13 24629.29

Source : Prepared by Researcher on the basis of data from Department of Commercial taxes

Taxable turn over and Out put tax due in in various Rates in the year 2015 giving better idea idea to learn the Impact of GST on Sales Tax revenue of Kerala More than 18%

: Commodities which are levied

Sales Tax rates more than 18% have

Taxable turn over of Rs. 7577.61 cr and corresponding Out Put Tax due is Rs. 1878.36 cr Between 14% to 18% : Commodities which are levied Sales Tax rates between 14% to 18%

have Taxable turn over of Rs. 114782.17 cr and corresponding Out Put Tax due is Rs. 15744.58 cr . Between 5% to 14% : Commodities which are levied

Sales Tax rates between 5 % to 14%

have Taxable turn over of Rs. 150586.06 cr and corresponding corresponding Out Put Tax due is is Rs. Rs. 6790.05 cr . Between 0.5% to 5% : Commodities which are levied Sales Tax rates between 0.5 % to 5%

have Taxable turn over of Rs. 22290.12 cr and corresponding corresponding Out Put Tax due is Rs. 216.17 cr Rates = 0% : Commodities which are levied

Sales Tax rates between 0.5 % to 5%

Taxable turnover of Rs. 16100.21 cr and corresponding Out Out Put Tax due is Rs. 0.13 cr

45

have

Figure 5. Sales tax –  tax –  Out  Out Put Tax due in the year 2015

(More (Between 0.5 (Rate = 0) than 18) to 5) 3% 5% 7%

(Between 14 to 18) 37%

(Between 5 to 14) 48%

Sales Tax Tax (2015) - Out put tax tax due Source : Prepared by Researcher on the basis of data from Department of Commercial taxes

4.8

GSDP and Sales Tax Revenue of Kerala  –   Future Trend Analysis

Analysis of Sales Tax Revenue of Kerala and GSDP performance can be done by using the data

from

Budget documents

and

Department

of

Commercial Taxes , Kerala .

Comparison of GSDP of Kerala Kerala and All India GDP shown below . Trend analysis for the period from 2004-05 to 2012-13 can be calculated by taking 2004-05 as base year . Table 18 . Trend of GSDP of Kerala (Base year 2004-05)

GDP - at current prices (Base Year 2004-05) Year GSDP of Kerala (Rs. in Lakhs) All India GDP(Rs. in Lakhs) Percentage contribution of Kerala to All India

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

11926400

13684176

15378488

17514108

20278279

23199867

26377330

30790606

34933832

297146400

339050279

395327593

458208557

530356710

610890300

724885900

839169100

938887600

4.01

4.04

3.89

3.82

3.82

3.8

46

3.64

3.67

3.72

GDP

Growth rate of GSDP of Kerala

14.73

12.38

13.88

15.78

14.4

13.69

16.73

13.46

Growth rate of All India GDP

14.1

16.59

15.9

15.74

15.18

18.66

15.76

11.88

Source : Prepared Prepared by Researcher on the basis of data from Budget documents of Kerala and GOI

GSDP of Kerala grew from Rs.11926.00 cr. in 2004-05 to Rs. 349338. 32 cr in 2012-13. In 2011-12, GSDP of Kerala grew grew by 16.73% then again again fell fell down to 13.46% in in 2012-13 . All India GDP

grew from Rs.2971464.00 c r. in 2004-05 to Rs. 9388876.00 cr in 2012-13. In

2011-12, All India GDP

grew by 15.76 % then again again fell down to 11.88 % in 2012-13 (Base (Base

year 2004-05). Figure 6 Comparison of growth rate of GSDP of Kerala and All india GDP(2004-13)

Growth rate of GSDP of Kerala and All india GDP 20    e    g    a    t    n    e    c    r    e    p

15

Growth rate of GSDP of Kerala (%)

10 5

Growth rate of All India GDP(%)

0

Source : Prepared by Researcher on the basis of data from Budget Budget documents of Kerala and GOI

Trend analysis for the period from 2011-12 to 2014-15 can be calculated by taking 2011-12 as base year .

47

Table 19. Trend of GSDP of Kerala (Base year 2011-12)

GDP - at current prices (Base Year 2011-12) Year

2011-12

GSDP of Kerala (Rs. in crores)

364047.9

412313

462916.1

519895.85

8736039

9951344

11272764

12488205

4.16

4.14

4.1

4.16

Growth rate of GSDP of Kerala

13.25

12.27

12.3

Growth rate of All India GDP

13.91

13.27

10.78

All India GDP(Rs. in crores) Percentage contribution of Kerala to All India GDP

2012-13

2013-14

2014-15

Source : Prepared by Researcher on the basis of data from Budget Budget documents of Kerala and GOI

GSDP of Kerala grew from Rs.364047.9 cr. in 2011-12 to Rs. 519895.85 cr in 2014-15. In 2014-15, GSDP of Kerala grew by 12.3%.

All India GDP grew from Rs.8736039 cr. in

2011 -12 to Rs. 12488205.00 cr in 2014-15. In 2014-15, All India GDP

grew by 10.78 %

(Base year 2011-12). 4.8.1

Estimation of GSDP of Kerala - at current prices from 2015-2020 (Base Year 2011-12)

Regression Analysis Analysis used to estimate future future trend trend of GSDP of Kerala Kerala (2015-16 to 2019-20) Estimation of GSDP of Kerala

Bxy =

 ∑   ∑ ∑   ∑   ______________  ∑   ∑  48

Bxy = Rs. 51814.65 cr

 _ Axy

=

Y

_ ─ Bxy * X

Axy = Rs. 310256.51 cr   Y ’ = Bxy *

,

Regression Equation  Y ’

= Rs. 51814.65 cr * 5 + Rs. 310256.51 cr

 Y ’

= Rs.56329.5 cr

4.8.2

X + Axy

Estimation of All India GDP - at current prices from 2015-2020 (Base Year 2011-12)

Regression Analysis used to estimate future trend trend of All India GDP (2015-16 to 2019-20) Estimation of All India GDP

Bxy =

 ∑   ∑  ∑   ______________    

Bxy = Rs. 1257791.8 cr

 _ Axy

=

Y ─ Bxy *

_ X

Axy = Rs. 7467608. 5 cr 

Regression Equation

,

 Y ’ = Bxy *

 Y ’ = Rs. 1257791.8 1257791.8 cr * 5 + Rs. 7467608. 5 cr  Y ’ = Rs.13756567.5 Rs.13756567.5 cr

49

X + Axy

Forecasted GDP - at current prices from 2015-2020 (Base Year 2011-12) shown in table  below . Table 20.Forecasted GDP - at current prices from 2015-2020 (Base Year 2011-12)

Forecasted GDP - at current prices from 2015-2020 (Base Year 2011-12) Year

2015-16

GSDP of Kerala (Rs. in crores)

569329.5

621144.6

672959.11

724773.76

776588.42

13756567.5

15014359

16272151.1

17529942.9

18787734.7

4.138

4.137

4.135

4.134

4.133

9.5

9.1

8.34

7.69

7.14

10.15

9.14

8.37

7.73

7.17

All India GDP(Rs. in crores) % contribution of Kerala to All India GDP Growth rate of GSDP of Kerala Growth rate of All India GDP

2016-17

2017-18

2018-19

2019-20

Source : Prepared by Researcher

All India GDP and GSDP of Kerala under VAT regime will grow at diminishing rate from 2015-16 to 2019-20.

4.8.3

Estimation of VAT Revenue of Kerala - at current prices from 2015-2020 (Base Year 2011-12)

Regression Analysis used to estimate future trend of VAT Revenue of Kerala (2015-16 to 2019-20) Bxy = Rs.1346.94 cr Axy = Rs.8221.73cr Y’ = Bxy * X + Axy Y’ = Rs.1346.94 cr * 11+ Rs.8221.73cr = Rs. 23038.18cr

Forecasted VAT collection collection from 2015-2020 (Base (Base Year Year 2011-12) shown in table below 50

Table 21.Estimation 21.Estimation of of VAT collection (Base year 2005-06)

VAT collection collection (Base year year 2005-06) Rs in crores

2006-07

Amount (Actual) 3321.98 4482.12

2007-08

5132.06

14.5

2008-09

6073.88

18.35

2009-10

6950.6

14.43

2010-11

8395.54

20.78

2011-12 2012-13 2013-14 2014-15

10055.19 12616.95 13860.96 15075.49

19.76 25.47 9.86 8.76

Year 2005-06

Growth %

Expected collection in 2015-16 (8.76%)

Shortfall from Normal Trend in 2015-16

16396.1

6642.08

34.92

Forecasted VAT collection (Base year 2005-06) 2015-16

23038.18

52.81

2016-17

24385.13

5.84

2017-18

25732.08

5.52

2018-19

27079.03

5.23

2019-20

28425.98

4.97

Source : Prepared by Researcher

Based on the trend from 2004-05 to 2014-15 under VAT regime VAT revenue of Kerala is expected to be grow at diminishing rate. As per Regression analysis , an amount of Rs. 23038.18 cr to be collected by State government in the financial year 2015.16. But expected

VAT collection for the financial year 2015-16 is Rs.16396.1cr . As per analysis ,it is seen that an amount of Rs. 6642.08 cr has been reduced or leaked from the normal Trend . This shortage of VAT revenue will have adverse impact on Economy . GST is the only option to increase the Tax Revenue of Kerala .

51

4.8.4

Estimation of Non- VAT revenue of Kerala - at current prices from 2015-2020 (Base Year 2011-12)

Regression Analysis used to estimate the future trend of Non VAT VAT revenue of Kerala (2015-16 to 2019-20) Bxy = Rs.1346.95 cr Axy = Rs.6366.63cr Y’ = Bxy * X + Axy Y’ = Rs.1346.95 cr * 11+ Rs.6366.63cr = Rs. 21183.08 cr

Forecasted Non VAT revenue from 2015-2020 (Base Year 2011-12) shown in table below Table 22.Estimation 22.Estimation of Non VAT collection (Base year 2005-06)

Non-VAT collection

Rs in crores

Year

Growth %

2005-06

Amount 3661.27

2006-07

4204.71

14.84

2007-08

4553.28

8.29

2008-09

5497.54

20.73

2009-10

6249.59

13.68

2010-11

7760.39

24.17

2011-12 2012-13 2013-14 2014-15

9255.35 10268.88 11515.29 12795.4

19.26 10.95 12.13 11.11

Expected collection in 2015-16 (11.11%)

Shortfall from Normal Trend in 2015-16

Forecasted VAT collection (Base year 2005-06) 2015-16

21183.08

65.55

2016-17

22530.03

6.35

2017-18

23876.98

5.97

2018-19

25223.93

5.64

2019-20

26570.88

5.34

52

14216.97

6966.11

Based on the trend from 2004-05 to 2014-15 under VAT regime Non - VAT revenue of Kerala is expected to be grow at diminishing rate. As per Regression Regression analysis , an amount of Rs. 21183.08 cr to be collected by State government in the financial year 2015-16 . But expected

 Non VAT collection for the financial year 2015-16 is Rs.14216.97 cr . As per analysis ,it is seen that an amount of Rs. 6966.1 cr has been reduced or leaked from the normal Trend . This shortage of Non VAT revenue will have adverse impact on Economy . Implementation of GST will increase the Tax Revenue of Kerala . 4.9

Probable Impact of GST on Sales Tax Revenue of Kerala

2015 RATE OF TAX

More than 18%

2017

(Rs. In Crores ) TAXABLE TURNOVER

7577.61

OUTPUT TAX DUE

GST (16-18%)

Revenue

Non GST commodities are more

Revenue from liquor , Petroleum and tobacco will retain with State Revenue will increase and will get SGST rates (89%) Revenue will increase and will get SGST rates (89%) Revenue will increase and will get SGST rates (89%) Revenue will increase and will get SGST rates (89%)

1878.36 Rate will increase from 14.5 to 18%

Between 14% to 18%

114782.17

15744.58 Rate will increase from 5 to 18%

Between 5% to 14%

150586.06

6790.05 Rate will increase from 0.5 to 5 %

Between 0.5% to 5%

22290.12

216.17 Rate will increase from 0 to 5 %

Rate = 0%

16100.21

0.13

TOTAL

311336.17

24629.29

Revenue Out flow from State to Central Government

1. GST is expected to be implement on 1 April,2017 . Then State Government will have to share CGST (8-9%) to Central Government from their Sales Tax , Entertainment tax, Luxury Tax .etc. 53

2. State Government Government have to share CST , Octroi and Entry Tax and Purchase tax with Central Government . 3. Sales tax Revenue from Lotteries will reduce reduce by half the amount ie; State Government should transfer transfer the amount equivalent to CGST rates rates . 4.

State is not allowed to to impose surcharges and cesses related to Goods

 Non Transfer Revenue of State Government

1. As of now , State Government is getting getting more Sales Tax from Liquor Liquor , Petroleum  products, and Tobacco products . These commodities commo dities are kept outside the ambit of GST regime . Hence Kerla will not face major revenue loss 2. Sales Tax Revenue from from High speed diesel, diesel, Motor Spirit (Petrol), Natural gas, and Aviation turbine fuel should be retatin in State Government. Revenue Out flow from Central to State Government

1. Central Government will have to share Service Tax with State Government at the rate equivalent to SGST. Service Sector is the dominating sector in Kerala Kerala . Hence this may  be the major additional revenue to the Kerala Government . 2. State Government will get share of Central Excise Duty, Additional Excise duty and of Excise duty levied under Medicinal and Toilet Preparations (Excise Duties ) Act ,1955 from Central Government. 3. State Government is eligible to get more revenue from Additional Custom duty (AVD) and Special Additional Duty of Custom (SAD). 4.

Central Surcharges & cesses related to supply of Goods to be shared with State Governmet.

Kerala is a consumer State and as well as Servicing Sector contributing more to the GSDP of Kerala. Hence implementation of GST will will boost the economic growth growth of Kerala

54

5 Chapter V Recommendations Recommendations & Conclusions 5.1

Important Findings

Service sector is the dominating sector in

Kerala economy

. Manufacturing Industry has

given less contribution contribution to its GSDP . Economy depends upon foreign remittances . We can call Kerala State

as ‘ Consumer Economy ’. Major source source of Own Tax revenue is Sales tax

Revenue . The following Recommendations emerged out of the findings of the present study . 1. Before VAT Regime If we consider four years years Sale tax revenue before the introduction introduction of VAT regime , Sales tax tax revenue has increased from Rs.4676.18 cr. to Rs.6797.42 cr. Sales tax revenue increased annually with average amount of Rs. 5733.84 cr. cr. and with with average growth rate of 13.28% . 2. After VAT Regime After introduction of

VAT in 2005 , Sales tax revenue of

Kerala has

divided

as

two

components VAT collection and Non VAT VAT collection . 

VAT collection VAT collection increased from Rs.3321.98 cr. in 2005-06 to Rs. 15075.49 cr in 201415. In the period period of 2013-15, VAT collection growth rate drastically fell down from the average growth rate of 18.53%. In 2013-14 , growth rate is 9.86% and in 2014-15 is 8.76%. State government should examine seriously about the vertical fall

of

VAT

collection . 

 Non - VAT collection  Non - VAT collection increased from Rs.3661.27 cr. in 2005-06 to Rs. 12795.4  cr in 2014-15. In the period of 2012-15, Non VAT collection growth rate drastically fell down from the average growth rate of 15.01 %. In 2013-14 , growth rate is 12.13% and in 55

2014-15 is 11.11%. State government should examine seriously about the diminishing trend of Non VAT collection . We can say the Average Growth rate of Sales tax revenue after VAT regime has improved from 13.28% in 2004-05 to 16.72% in 2014-15. 3. Findings on sector wise contribution to Total Tax revenue 

Contribution from Beverages (Liquor ) sector is almost 21% of of Kerala . Sales

Tax

the Total tax revenue

collection from Beverages (liquor )sector

increased from

Rs.1427.59 cr. in 2005-06 to Rs. 6685.84 cr in 2014-15. In the period of 2012-15,

Sales Tax collection growth rate drastically fell down from the average growth rate of 18.85 %. In 2012-13 growth rate is13.72% ,and in 2013-15 growth rate is 8.13 % and in 2014-15 is 14.67%. Remedial measures to be taken to avoid Tax leakages . Changes in State Liquor Policy will have the impact on the sales tax revenue from this sector sector . 

Sales

Tax

collection from Oil and Petroleum products

Rs.2028.88 cr. in 2005-06 to Rs. 5593.07 cr in 2014-15.

sector

increased from

During this period (2005-

15) , an average growth growth acquired in tax revenue from this sector to the tune of Rs. 3522.03cr

. In 2013-15, growth rate is 13.93 %

and in 2014-15 is 8.42 %. When

compared with the average growth growth rate of 12.07% the growth rate in 2014-15 is far  below the Benchmark . 

Sales Tax collection from Automobile sector increased from Rs.560.06 cr. in 200506 to Rs. 2347.8 cr in 2014-15. During this period (2005-15) , an average growth acquired in tax revenue from this sector to the tune of Rs. 1428.05 cr growth rate is 5.03 %

. In 2013-15,

and in 2014-15 reported a negative growth rate of - 4.04 %.

When compared compared with the average growth rate of 20.3% the growth growth rate in 2013-15 is worse

than ever . This Vertical Vertical fall in Automobile Automobile

Tax collection collection will affect the

economy adversely . Remedial measures to be taken to avoid Tax leakages . 

Sales Tax collection from Gold Merchandise sector is increased from Rs.21.21 cr. in 2005-06 to Rs. 456.76 cr in 2014-15. During this period (2005-15) , an average growth 56

acquired in tax revenue from this sector to the tune of Rs. 239.6 cr growth rate is 19.81 %

. In 2013-15,

and in 2014-15 reported a negative growth rate of - 3.13 %.

When compared with the average growth rate of 59.61 % the growth rate in 2013-15 is worse than ever . This Vertical fall in Gold sales tax collection to be examined by the respective Authorities Authorities

. Remedial measures to to be taken taken to avoid Tax evasion and

leakages . 

Central Sales Tax (CST) collection is decreased from Rs. 486.36 cr. in 2005-06 to Rs. 310.99 cr in 2014-15. During this period (2005-15) , an average growth acquired in

tax revenue from CST is to the tune of Rs. 290.83 cr . In 2013-14, growth rate is -1.18 % and in 2014-15 reported the growth rate of 2.65 %. During this Period (2005-15) reported an average growth rate of -3.21% . CST is expected to be subsumed in GST . IGST will be levied for inter State transactions transactions .This will affect affect the revenue of State Government . State Government will will get a share of revenue from Central Government at SGST rates . 

Data related to Taxable turn over and Out put tax due in different Rates of tax in the year 2015 giving better idea to learn the Impact of GST on Sales Tax revenue of Kerala . GST rate is expected to be an upper limit of 18%. More than 18%

: Commodities which are levied

Sales Tax rates more than 18%

have Taxable turn over of Rs. 7577.61 cr and corresponding Out Put Tax due is Rs. 1878.36 cr . As of now , rates more than than 18% is levying on commodities like Liquor , Oil and Petroleum products . These commodities are excluded from GST regime . Hence State Government will not face any revenue loss from these sectors . Between 14% to 18% : Commodities which are levied Sales Tax rates between 14%

to 18% have Taxable turn over of Rs. 114782.17 cr and corresponding Out Put Tax due is Rs. 15744.58 cr . It is expected that a hike in tax revenue revenue in this band . Between 5% to 14% : Commodities which are levied Sales Tax rates rates between 5 % to

14% have Taxable turn over of Rs. 150586.06 cr and corresponding Out Put Tax due is Rs. 6790.05 cr . Kerala Government Government will get more revenue from from this Band 57

Between 0.5% to 5% : Commodities which are levied Sales Tax rates between 0.5 %

to 5% have Taxable turn over of Rs. 22290.12 cr and corresponding Out Put Tax due is Rs. 216.17 cr . Implementation of GST will increase the tax revenue from this ban d Rates = 0% : Commodities which are levied

Sales Tax rates between 0.5 % to 5%

have Taxable turn over of Rs. 16100.21 cr and corresponding Out Put Tax due is Rs. 0.13 cr. In this band , changes in revenue will depends upon the Policy decision decision of the central Government . If the government decide to levy tax on these commodities will increase the the Revenue of Kerala . 5.2

Recommendations

1. State Government should take necessary actions to plug the loop holes to avoid Tax evasion and leakages of Taxes . 2. Government should increase increase the pace of Revenue mobilization . New revenue revenue resources to be identified and introduced . 3. Remedial measures to be taken to fill the gap in Non VAT revenue and VAT revenue . Shortage of VAT revenue and Non VAT VAT revenue is nearly Rs, 6642.08 cr   and Rs. 6966.11cr respectively . If this shortage will continue for next two years will have

adverse impact on GSDP of Kerala . 4. State Government should identify and introduce new Non Tax resources .Government may introduce introduce a new levy on Rent as “ Municipal Rent tax”. Owners of House/ shops should remit 2% of their Rental Income Income to State Government. Government. Those who are paying Income tax on Rental income should be subsidized as per their Income Tax Return. Proper Legal frame work should be done . 5. Government should prepare for the replacement of

VAT regime by

GST . State

Government should focus on the commodities which have tax rates below 14.5% . State should promote the business of these commodities . 6. Tax Administration should be restructured to cope up with the upcoming GST regime. Tax Administration should be efficient and transparent . 7. Government should increase the degree of Penalty for Tax evasion . Necessary legal frame work should be adopted .

58

8. Finance Department should start a new wing “ GST Special Division” to support the implementation of GST regime regime . This wing will identify the new resources to increase increase the Tax revenue revenue and Non Tax Revenue by way way of introducing Surcharges and Cesses . Operations of this division will help the activities of Department of Commercial Taxes. Coordination between Finance Finance Department and Taxes Department will helps to reduce the shortage in VAT collection and Non VAT collection. This GST Division will act as a  bridge between Finance Department and Taxes Department. 9.  New Surcharges and

Cesses

which

are not

related to

supply of

Goods to be

introduced . 10. Government should initiate initiate operations to identify identify the Service sector / Service category which are expected to be increase tax revenue revenue to State Government . Service Service tax is expected to be subsumed in GST . Hence State Government will have the opportunity to share the existing Service Tax revenue with Central Government . The amount of service tax may be equivalent to SGST rates rates . For this purpose government may start a new department /wing exclusively for Service Sector . 11. State Government should initiate activities to generate revenue from Non registered Business owners . They are doing business without Bank transactions . They like only cash transactions . Hence they are wisely hiding their Business Turnover . Actually their  business turnover is more than Rs 10 lakhs per annum. Government should introduce new scheme aimed to include these Non Registered Registered Business Owners. On the basis of shop size ( in sq.ft) sq. ft) they have to pay a nominal annual fee as “ Non Registered Business Owner fee ”. For example , Rs . 500 may be levied levied for for 100sq.ft room , Rs. 1000 for for 500 Sq.ft room, Rs.2500 for 1000 sq.ft and Rs. 5000 for more than 1500 sq.ft. sq.ft. These  Non registered business owners are expected to be excluded from the GST regime . Hence State government should utilize this opp ortunity . 12. Tax authorities should upgrade the software   to track the actual Out Put Tax due . Existing software has loopholes to manipulate in Stock of commodities commodities , Taxable turn over and in Pricing of commodities etc. 13. Tax collection mechanism should be reviewed . Frequent Raid will not satisfy the  purpose. Best option is to invite the cooperation of Public . Modern Social media like Face Book and WhatsApp to be used to promote the collection mechanism . Incentives 59

to be given to the Consumers as when they are sending the original bills image via Facebook and WhatsApp. This will helps to reduce the Tax leakages . 14. Check Posts to be modernized . Automatic Weighing Machine , Scanners and CCTV are to be installed installed at least in the Boarder check Posts . 15. Degree of penalty/punishment penalty/punishment to be increased against the corrupted officers. 5.3

Conclusion

Goods and Services Tax (GST) is expected to be a historical movement in Tax reforms reforms . Main objective of this new tax regime regime is to avoid multiple taxation on same same goods and services services . Introduction of this destination based consumption tax will stimulate Indian

industry and

ensure its overall economic development and growth . Proposed GST will act as a fulcrum to reduce unemployment in the country . Both Central and State governments are levying levying tax on goods and services at different rates , have been created inefficiency in the tax system . GST is expected to be bring back efficiency in the tax system and it will restrict the leakages . This study estimating a positively correlated growth in GSDP of Kerala Kerala and Sales tax revenue. revenue. Impact of GST regime on GSDP of Kerala is to be significant significant in coming years . Based on this study , one can expect the introduction of GST will have a positive impact on the Sales tax revenue of Kerala.

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