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: Benix Kanjiravila.T
Date of birth
: 10/05/1980
Title
: A STUDY ON GST AND ITS IMPACT ON THE SALES TAX
REVENUE OF KERALA
OPEN ACCESS
Certified by:
Benix Kanjiravila .T
(FINANCIAL MANAGEMENT)
Submitted at
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, Diploma, Associate ship, Fellowship or other similar title or
recognition. This is to declare further that I have also fulfilled the requirements of PGDM(FM)
Guidelines for Project Report.
Benix Kanjiravila.T
Participant
PGDM (FM) 14-16
Date : October 16
CERTIFICATE
On the basis of declaration submitted by Benix Kanjiravila.T, a participant of PGDM(FM)
2014-16, I hereby certify that the project report titled
A STUDY ON GST AND ITS
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.
Finance)
Project Guide and Faculty
Date : October 16
Table of Contents
Table of Contents .......................................................................................................................... 1
1
Chapter I ............................................................................................................................ 10
1.1
1.1.1
1.1.2
1.1.3
1.2
1.3
2.1.1
2.1.2
2.1.3
2.1.4
2.1.5
2.1.6
2.1.7
2.1.8
3.1.1
3.1.2
3.1.3
3.1.4
Chapter IV ........................................................................................................................... 25
4.1
Introduction .................................................................................................................. 25
4.2
4.3
4.3.1
4.3.2
4.4
4.5
Kerala Sales Tax Revenue ( Before and After VAT regime) ................................. 33
4.5.1
4.5.2
4.5.3
4.6
4.6.1
4.6.2
4.6.3
4.6.4
4.6.5
4.6.6
4.7
4.8
GSDP and Sales Tax Revenue of Kerala Future Trend Analysis .................... 46
Chapter V ........................................................................................................................... 55
5.1
5.2
Recommendations ........................................................................................................ 58
5.3
Conclusion ..................................................................................................................... 60
References
Appendices
List of Tables
List of Figures
List of Illustrations
Chapter 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 is to avoid multiple
taxation on same goods and 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 tax on goods and services at different rates , have been created
inefficiency in the tax system . GST is expected to be to bring back efficiency in the 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
improve economic viability of the government by way of increasing public expenditure under
the targeted revenue constraints . ii) To eliminate the definitional separation between goods
and services . iii) To achieve efficiency in tax system and to envisage the
powers and
indirect tax revenue 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 tax buoyancy with state governments at predetermined rate
and vice versa . This might be a win- win situation for all the parties of the tax system .
10
Both the central and state governments will be benefited by increasing revenue share and cost
reduction in tax 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
to the level of
Most of the Developed and Developing nations were introduced GST , but India has 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 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 Production approach, Income approach and Expenditure approaches
are using to calculate GDP/GSDP . This study is using Expenditure approach as a basis .
As per Expenditure approach, Gross Domestic Product is the summation
(C), Investment(I) ,Government Expenditure (G) and
import(X-M)
11
of Consumption
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 State Domestic Product
TR
STR
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.
3.
business become
competitive.
The proposed thesis will give new insights , ideas , and information to the
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
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 GDP by stimulating investment by eliminating cascading
effect of taxes
iii)
Most of the Indian states are in confusion, in such a way that, whether it will reduce
their tax
revenue and whether they will get proper compensation from central
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
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
Lok Sabha officially passed Goods and Service Tax Bill- 2014, on 6th 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 and cost constraint , the research has less scope to conduct a detailed study on overall
sales tax sectors . Hence the research limited to the prominent and highly impacted sales tax
sectors . Data dissemination of selected sectors from the aggregate data consumed more time .
14
2 Chapter -II
2.1
Literature Review
Introduction
Central Government is expected to be
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. Economists are believing Goods and Service Tax is the major indirect tax
reform in India after independence . This law ensuring 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 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 on various goods and 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 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.
effect of taxes and reduction in transaction costs which shall enhance Indias ranking in
World Banks ease of doing business 1.
https://en.wikipedia.org/wiki/Ease_of_doing_business_index
15
Fiscal motives to implement the proposed GST shall be - i) To expand the fiscal space and 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 and to envisage the
goods
powers and
well above the level of Union government since 2008-09. Upcoming GST envisaged that
central government will
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 .
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
to the level of
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
consumption of various goods and services throughout India , to replace existing taxes levied by the
central and state governments 2.
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 Indian Constitution , defines Goods and Service Tax (GST) to mean any kind of tax imposed on supply of goods or
services or both except taxes on the supply of the alcoholic liquor for human consumption 3 .
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 way of removal of double taxation
and less transaction costs . It will enhance 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_Tax_Bill
New Article 366(12A) of the Indian Constitution
17
VAT
in their article An
International Perspective on VAT . Wilhelm Von Siemens, a German businessman has put
forward
the Father of Value Added Tax 4 regime who was the former Joint Director of the French
Tax Administration
Senegal and Cte dIvoire were introduced VAT on Manufacturing Level . In 1965 , Brazil
introduced a traditional VAT regime as a fiscal 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
broad base and maintaining unified tax rates .Generally Developing countries are preferring
single rate system . GST is the variant form of VAT . 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 its implementation . This initiative is
considered as the beginning of tax law reforms on excise duty and sales tax at national level .
At the time of introduction of FRBM Act, 2003 , Kelkar had suggested GST as an advanced
version of VAT . Shri P Chidambaram had 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 to the Empowered committee of State
Finance Ministers .
suPhSsosso
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
any change required on this report . On 10th of November, 2009 , Empowered Committee
published its first discussion paper 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
UPA government aimed to introduce GST on 1st April, 2010. Opposition parties including BJP
didnt allow them to pass this Bill. Lok Sabha officially passed Goods and Service Tax Bill2014, on 6th 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
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 and services .
SGST :- Under SGST model , State governments alone have the responsibility to levy and collect
GST and the Central Government
completely . Central Government will cover its revenue loss due to the relinquishment of
SGST taxable area by way of adjusting its fiscal transfers to State Governments . State
governments
are
using
SGST
to
improve
management .
5
finmin.nic.in/gst/IT_Strategy_for_GST_ver0.85.pdf
19
their
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 Centre. Hence, Central Government has shown
its strong desire to implement Concurrent Dual GST
Indian Model of GST Concurrent Dual GST
Concurrent Dual GST comprises both Central GST and State GST and levied on common tax
base . Indian GST is an example 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.
separation will be included under this proposed GST regime except 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
20
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 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 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
CGST and SGST respectively 6.
2.1.7 Components of Total Revenue of Kerala state
Kerala Development Report published by Planning commission of India specifically referring
composition of the revenue structure of Kerala. Tax Revenues and Non tax revenues 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
www.gstindia.com/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 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 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 and commodities were contributed 84.58% among tax
revenue sources . Out of this 67.9% were from sales tax7 .
Ehtisham Ahmad
shortcomings of
current system as complex and irrational . Shortcomings of the prevailing tax system are
multiple taxation at Manufacturing level , Exclusion of various services , Cascading Effect of
Taxes and complexity of the Tax procedures .
www.nipfp.org.in/.../9.%20Part%202%20-%20State%20Finances%20In%20Kerala.pdf...by RR AIYAR
22
3 CHAPTER III
3.1
Research Methodology
Introduction
Taxes are the major sources of revenue to the Government . It is important the tax 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 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
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 the study:
Phase I. The researcher carried out the document analysis to understand the prevailing
Tax system in India .
countries, further helped in analyzing the barriers to robust and effective GST
implementation in India.
Phase II. Report of sub committee - II on model GST law was critically studied to
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 of the 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 .
Phase III. A critical analysis of the trend in sales tax revenue of Kerala and projected
sales tax revenue
expected impact on the sales tax revenue of Kerala . The hypothetical rates can be used
to calculate the probable impact on various sectors in Kerala . Study helped to identify
23
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.
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 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. This interaction helped the researcher to gather more knowledge
about Kerala economy and its expected impact on Sales tax 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 of data obtained from the key
informant interviews and
study
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
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
Tax
Taxable event is
Taxable event is
Taxable event is
Taxable event is
Taxable
event
Manufacturing
Provision of service
Sale of goods
is
Tax Revenue
Tax Revenue
categories
corporation tax
Taxes on
Income
Wealth tax
customs
Union Excise
Duties
Service tax
other taxes and
duties on
commodities
Taxes of union
territories
Total tax
revenue
(in crores )
year
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
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
Customs duty : Customs duty can be imposed on the transactions of Exports and imports .
This tariff can be levied and collected for regulating
Goods, animals , and other hazardous items . 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.
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
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%
Tax Buoyancy
Year
2012-13
2013-14
2014-15
Average 201215
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
13.1
13.4
Implied
Buoyancy
DT
IDT
1.2
1.7
1.2
0.4
0.6
0.6
12.6
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 Tax Buoyancy of Direct Tax and Indirect
Tax is 1 and 1.4 respectively .
4.3
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 of various Developed and
Developing countries are shown below .
Table 3. List of 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
Singapore
9
Swedan
10
Peru
11
Portugal
12
Italy
13
Ireland
14
Netherlands
15
Norway
16
New Zealand
17
Israel
18
Russia
19
China
20
Pakistan
21
India
Source : https://en.wikipedia.org.
7%
25%
18%
23%
22%
23%
21%
25%
15%
17%
18%
17%
17%
14.5%
GST
Scenario
1000
Total
VAT @12.5 % on
160
1160
145
0
1000
0
Total
1305
1000
CGST @ 9% (Rate is
assumed )
90
Particulars
Value of Goods
Excise Duty @16%
29
SGST @ 9% (Rate is
assumed )
Total
0
1305
90
1180
305
Price Reduction
180
Rs.125
In the above example , an amount of Rs. 125 has reduced from the normal tax regime . This
price reduction will reduce the inflation and ensure the price stability . Benefits of the GST
regime will be equally distributed either indirectly or directly to the various stake holders .
30
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
Here a price reduction of Rs. 3.2 will creates and treats the whole nation as a Single Market .
Transportation of Goods from nearby States becomes cheaper .
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 are 9% . The movement is from Kochi
to Calicut and then Calicut to Bangalore .
31
Government will be
subsumed in the Proposed GST regime . The following prevailing taxes may be subsumed from
State Sector
Prevailing taxes are proposed 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
Kerala economy
given less contribution to its GSDP . Economy depends upon foreign remittances . We can call
Kerala State as Consumer Economy . Major source of Own Tax revenue is Sales tax
Revenue . Sales tax revenue growth before the introduction of VAT in 2005 is shown below .
33
If we consider four years Sale tax revenue before the 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 of 13.28% .
After introduction of VAT in 2005 , Sales tax revenue of Kerala has divided as two
components VAT collection and Non 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
Year
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
Amount
3661.27
4204.71
4553.28
5497.54
6249.59
7760.39
9255.35
35
Growth %
14.84
8.29
20.73
13.68
24.17
19.26
2012-13
2013-14
2014-15
Average
10268.88
11515.29
12795.4
7576.17
10.95
12.13
11.11
15.01
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 2005 , Total Tax collection means the sum of VAT collection and Non- VAT
collection. VAT collection is based on VAT Rules and Non VAT collection based on KGST
rules .
VAT
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
Average
15075.49
12795.4
27870.89
16172.65
9.83
16.72
Before the introduction of VAT regime , Sales tax revenue has increased from
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 . Major portions of commodities providing Non VAT collection is expected
to be exclude from the ambit of GST. It is better for the consumer states like Kerala .
4.6
Major sources of Sales tax revenue are from Beverages (Liquor) , Oil and Petroleum products
, Automobile sector , Lottery and Gold etc . In addition to 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 Total Tax Revenue
Lottery
1%
Automobile
8%
Gold
1%
Source : Prepared by Researcher on the basis of data from Department of Commercial taxes
has
warehouses in various part of Kerala . Contribution from Beverages (Liquor ) sector is almost
21% of the Total tax revenue of Kerala .
38
Beverages (Liquor)
Rs in crores
Year
Amount
Growth %
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
1427.59
1681.3
1997.61
2503.77
2984.9
3775.04
4740.74
5391.48
5830.12
17.77
18.81
25.33
19.21
26.47
25.58
13.72
8.13
2014-15
Average
6685.84
3701.83
14.67
18.85
Source : Prepared by Researcher on the basis of data from Department of 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 %. In 2012-13 growth rate
is13.72%
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 the Total
tax revenue of Kerala .
39
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
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 the economy adversely . Remedial 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
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Average
Gold
Rs in crores
Amount
Growth %
21.21
97.9
120.93
143.51
163.04
225.4
302.2
393.54
471.53
456.76
239.6
361.57
23.52
18.67
13.6
38.24
34.07
30.22
19.81
-3.13
59.61
Source : Prepared by Researcher on the basis of data from Department of 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 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 .
year
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Average
Lottery
Rs in crores
Amount
Growth %
47.24
60.62
28.32
94.85
56.46
95.21
0.38
106.04
11.37
47.26
-55.43
67.4
42.61
94.25
39.83
112.2
19.04
198.1
76.56
92.31
24.34
Source : Prepared by Researcher on the basis of data from Department of 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 Government at CGST rates .
4.6.6 Central Sales Tax (CST)
Central Sales Tax is levied and collected on inter state transactions . State 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
Kerala is one of the major Consumer State in India . It depends upon Other States for
essential commodities like Vegetables , Rice , Grocery items and Meat etc . These commodities
are coming from Tamil Nadu, Karnataka and Andhra Pradesh .etc. Revenue contribution from
CST is nearly 1 % of the Total tax revenue of Kerala.
43
CST
year
Rs in crores
Amount
Growth %
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Average
486.36
339.66
222.6
225.52
223.43
231.27
258.96
306.58
302.96
310.99
290.83
-30.16
-34.46
1.31
-0.92
3.5
11.97
18.38
-1.18
2.65
-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 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 .This will affect the revenue of State Government . State Government will get a
share of revenue from Central Government at SGST rates .
4.7
Let us examine the Taxable turn over and Out put tax due in various Rates in the year 2015 .
GST rate is expected to be an upper limit of 18%.
44
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
OUTPUT TAX
TURNOVER
DUE
7577.61
1878.36
114782.17
15744.58
150586.06
6790.05
22290.12
216.17
16100.21
0.13
311336.17
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 various Rates in the year 2015 giving better idea to
learn the Impact of GST on Sales Tax revenue of Kerala
More than 18%
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 Out Put Tax due is 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 Out Put Tax due is Rs. 216.17 cr
Rates = 0% : Commodities which are levied
Taxable turnover of Rs. 16100.21 cr and corresponding Out Put Tax due is Rs. 0.13 cr
45
have
Figure 5. Sales tax Out Put Tax due in the year 2015
(More
(Between 0.5
than
18)
(Rate
=
0)
to 5)
3%
5%
7%
(Between 14 to
18)
37%
(Between 5 to
14)
48%
4.8
Analysis of Sales Tax Revenue of Kerala and GSDP performance can be done by using
the data
from
Budget documents
and
Department
of
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
3.64
3.67
3.72
46
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 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 by 16.73% then again fell down to 13.46% in 2012-13 . All
India GDP
year 2004-05).
Figure 6 Comparison of growth rate of GSDP of Kerala and All india GDP(2004-13)
percentage
20
15
10
5
Source : Prepared by Researcher on the basis of data from 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
2011-12
GSDP of Kerala
(Rs. in crores)
All India
GDP(Rs. in
crores)
Percentage
contribution of
Kerala to All
India GDP
2012-13
2013-14
2014-15
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
Source : Prepared by Researcher on the basis of data from 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%.
grew by 10.78 %
Regression Analysis used to estimate future trend of GSDP of Kerala (2015-16 to 2019-20)
Estimation of GSDP of Kerala
Bxy =
______________
48
Axy =
_
_
Y Bxy * X
Regression Equation
4.8.2 Estimation of All India GDP - at current prices from 2015-2020 (Base Year
2011-12)
Regression Analysis used to estimate future trend of All India GDP (2015-16 to 2019-20)
Estimation of All India GDP
Bxy =
______________
_
Axy =
Y Bxy * X
Regression Equation
Y = Bxy * X + Axy
49
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
GSDP of
Kerala (Rs.
in crores)
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
2015-16
2016-17
2017-18
2018-19
2019-20
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 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 from 2015-2020 (Base Year 2011-12) shown in table below
50
Amount
Year
Growth %
(Actual)
2005-06
3321.98
2006-07
4482.12
34.92
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
10055.19
19.76
2012-13
12616.95
25.47
2013-14
13860.96
9.86
2014-15
15075.49
8.76
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
Shortfall
Expected
from Normal
collection in
Trend in
2015-16 (8.76%)
2015-16
16396.1
6642.08
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 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 of Non VAT collection (Base year 2005-06)
Non-VAT collection
Rs in crores
Expected
collection in
2015-16
Growth % (11.11%)
Shortfall
from
Normal
Trend in
2015-16
14216.97
6966.11
Year
Amount
2005-06
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
9255.35
19.26
2012-13
10268.88
10.95
2013-14
11515.29
12.13
2014-15
12795.4
11.11
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
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 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
2015
RATE OF TAX
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%
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
2. State Government have to share CST , Octroi and Entry Tax and Purchase tax with
Central Government .
3. Sales tax Revenue from Lotteries will reduce by half the amount ie; State Government
should transfer the amount equivalent to CGST rates .
4. State is not allowed to impose surcharges and cesses related to Goods
Non Transfer Revenue of State Government
1. As of now , State Government is getting more Sales Tax from Liquor , Petroleum
products, and Tobacco products . These commodities are kept outside the ambit of GST
regime . Hence Kerla will not face major revenue loss
2. Sales Tax Revenue from High speed 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 . 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 boost the economic growth of Kerala
54
5 Chapter V
Recommendations & Conclusions
5.1
Important Findings
Kerala economy
given less contribution to its GSDP . Economy depends upon foreign remittances . We can call
Kerala State as Consumer Economy . Major 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 Sale tax revenue before the 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 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 collection .
VAT collection
VAT collection increased from Rs.3321.98 cr. in 2005-06 to Rs. 15075.49 cr in 201415. 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 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 the Total tax revenue
of Kerala . Sales Tax collection from Beverages (liquor )sector
increased from
Tax
sector
increased from
Rs.2028.88 cr. in 2005-06 to Rs. 5593.07 cr in 2014-15. During this period (200515) , an average growth acquired in tax revenue from this sector to the tune of Rs.
3522.03cr
compared with the average 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,
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 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
. 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 Authorities
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 .This will affect the revenue of State
Government . State Government 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%
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 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 in this band .
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 Out Put Tax due
is Rs. 6790.05 cr . Kerala Government will get more revenue from this Band
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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 band
Rates = 0% : Commodities which are levied
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 of the
central Government . If the government decide to levy tax on these commodities will
increase 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 the pace of Revenue mobilization . New 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 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 a new levy on Rent as Municipal Rent tax. Owners of House/ shops
should remit 2% of their Rental Income to State 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 .
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8. Finance Department should start a new wing GST Special Division to support the
implementation of GST regime . This wing will identify the new resources to increase
the Tax revenue and Non Tax Revenue by way of introducing Surcharges and Cesses .
Operations of this division will help the activities of Department of Commercial Taxes.
Coordination between 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 operations to identify the Service sector / Service category
which are expected to be increase tax revenue to State Government . 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 . 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 Business Owners. On the basis of
shop size ( in sq.ft) they have to pay a nominal annual fee as Non Registered Business
Owner fee . For example , Rs . 500 may be levied for 100sq.ft room , Rs. 1000 for
500 Sq.ft room, Rs.2500 for 1000 sq.ft and Rs. 5000 for more than 1500 sq.ft. These
Non registered business owners are expected to be excluded from the GST regime .
Hence State government should utilize this opportunity .
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 , 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
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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 at least in the Boarder check Posts .
15. Degree of 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 . Main
objective of this new tax regime is to avoid multiple taxation on same goods and 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 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 and Sales tax revenue. Impact of
GST regime on GSDP of Kerala is to be 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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References
1. Buget documents , Government of India (2004-15)
2. Buget documents , Government of Kerala,(2004-15)
3. https: //en.wikipedia.org/wiki/Goods_and_Services_Tax_Bill
4.
5. Insight of GST in India - 2nd Concept Paper by the Institute (as on date) -
7. www.gstindia.com/model-of-gst-law-2016/
8. CA Mohit Singhal , Indian Model of Goods &Service Tax(GST) , Tax guru , Article
nd
24. Atul Kumar Gupta , GST - Concept and Roadmap , Lexis Nexis Publications ,July
2015.
25. https://en.wikipedia.org/wiki/list_of_countries_by_tax_rates
26. Dr. Girish Ahuja and Dr.Ravi Gupta , Practical Approach to DIRECT & INDIRECT
TAXES, (Income Tax, Excise, Customs, CST, VAT, Service Tax, & Wealth Tax )
Bharts Publications ,2015
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