Kerala Public Expenditure Review Committee flags IGST settlement shortfall as ‘major concern and a puzzle’

Kerala's IGST settlement issues persist, highlighting systemic concerns, as noted in the KPERC's latest report on revenue challenges.

The persistent issues Kerala has been facing with regard to the integrated goods and services tax (IGST) settlement has found mention in the report of the Kerala Public Expenditure Review Committee (KPERC), which describes it as “a major concern” and “a puzzle yet to be resolved.”

The first report of the 7th KPERC covering the period from 2021-22 to 2023-24 was tabled in the Kerala Assembly recently. The committee observed that the buoyancy of the goods and services tax (GST) has improved significantly, indicating that GST revenues have become “increasingly responsive” to economic growth in the post-COVID-19 recovery phase. However, Kerala has not been able to rake in much revenue from IGST settlements, according to it.

The GST framework envisions benefits for consumption-oriented States from IGST accruals. Kerala, with its dependence on interstate supplies, fits this profile. However, evidence indicates that the State has not realised the anticipated gains from IGST settlement, the committee said.

“This anomaly points to systemic issues in IGST settlement, including deficiencies in place-of-supply rules, concentration of registrations in producing States, and inadequate capture of interstate service consumption. The persistence of this pattern in the post-pandemic recovery phase suggests that the problem is structural rather than transitory,” the panel headed by K.J. Joseph said.

The report says Kerala, a consumer State, exports commodities worth around ₹550 billion to other States, while importing items worth almost ₹1.5 trillion from them. The trade deficit with the rest of the country is approximately ₹1 trillion (₹1 lakh crore). “Considering this, the SGST-to-IGST ratio in Kerala would be at least 3. But the IGST share in Kerala is only 1.2, which is a puzzle yet to be resolved. This implies that Kerala’s dependence on other States through interstate purchases has not improved its IGST ratio,” the report notes.

The Kerala government too has been highlighting this issue over the years, and had taken it up with the GST Council. However, the issue persists, as has been noted by the 7th KPERC. In 2017-18, the State GST (SGST) had stood at ₹5,399 crore and IGST, ₹,6065 crore, the IGST/SGST ratio being 1.1%. In 2023-24, these were respectively ₹13,934 crore, ₹16,977 crore and 1.2%.