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DECLARATION OF GRADUATE PROJECT PAPER AND COPYRIGHT

Authors 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 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 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:

A STUDY ON GST AND ITS IMPACT ON THE SALES TAX


REVENUE OF KERALA
By
BENIX KANJIRAVILA . T
PROJECT REPORT

Under the Supervision of


Dr. Pramod Kumar Pandey
National Institute of Financial Management
in Partial Fulfilment of the 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

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.

Place: NIFM, Faridabad

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.

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

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

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

1.1.1

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

1.1.2

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

1.1.3

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

1.2

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

1.3

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

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


2.1

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

2.1.1

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

2.1.2

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

2.1.3

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

2.1.4

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

2.1.5

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

2.1.6

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

2.1.7

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

2.1.8

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

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


3.1

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

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

3.1.1

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

3.1.2

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

3.1.3

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

3.1.4

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

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

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

4.2

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

4.3

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

4.3.1

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

4.3.2

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

4.4

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

4.5

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

4.5.1

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

4.5.2

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

4.5.3

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

4.6

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

4.6.1

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

4.6.2

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

4.6.3

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

4.6.4

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

4.6.5

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

4.6.6

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

4.7

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

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

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

5.2

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

5.3

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

List of Tables

Table 1. Major Tax Revenue components of GOI ........................................................... 26


Table 2. Central Tax Buoyancy ..................................................................................... 28
Table 3. List of Countries with GST/ VAT Rates ............................................................ 28
Table 4. Price Reduction in Intra- State supply ............................................................... 29
Table 5. Price Reduction in Inter- State Sale ................................................................... 31
Table 6. Sales Tax Collection Before VAT ...................................................................... 34
Table 7. Trend of VAT collection in Kerala .................................................................... 34
Table 8. Trend of Non VAT collection in Kerala ............................................................ 35
Table 9. Trend of Total Tax collection in Kerala ........................................................... 36
Table 10. Trend of Sales Tax from Liquor ...................................................................... 39
Table 11.Trend of Sales Tax from Oil & Petroleum products .......................................... 40
Table 12. Trend of Sales Tax from Automobile Sector .................................................... 40
Table 13. Trend of Sales Tax from Gold ......................................................................... 41
Table 14. Trend of Sales Tax from Lottery ..................................................................... 42
Table 15. Centrlal Sales Tax Rates ................................................................................. 43
Table 16. Trend of Central Sales Tax in Kerala ............................................................. 44
Table 17. Sales Tax Revenue from Different Rates of Tax ............................................... 45
Table 18 . Trend of GSDP of Kerala (Base year 2004-05) ................................................ 46
Table 19. Trend of GSDP of Kerala (Base year 2011-12) ................................................. 48
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
Table 22.Estimation of Non VAT collection (Base year 2005-06) .................................... 52

List of Figures

Figure 1. Current tax Structure in India ......................................................................... 25


Figure 2. Percentage wise Tax revenue in 2014-15 ........................................................... 27
Figure 3. Percentage of Non VAT collection in Total Tax collection ................................ 37
Figure 4. Percentage wise contribution of Major components of Total Tax Revenue . Error!
Bookmark not defined.
Figure 5. Sales tax 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

List of Illustrations

Illustration 1.Supply and re-supply of Goods /services in one State ................................. 30


Illustration 2. Sale / Supply in one State and the resale in another State ....................... 31
Illustration 3.Sale or supply is outside the state and resale is within the State .................. 32

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

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 states were achieved their revenue deficit targets . At the 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 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

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 Revenue of Kerala

1.1.1 Statement of the Problem

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

the 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 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 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 believed to be a crucial tax reform 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 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 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

government 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 ?.

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

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

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. 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.

Implementation of GST will avoid cascading

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

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 percentage (3%) of
GSDP . Majority of Indian states were achieved their revenue deficit targets . At the same time,
Union government is not able to achieve both the targets .
Reasons behind ineffective fiscal 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 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 . 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

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 indirect tax on manufacture , sale and

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 .

2.1.2 Relevance of GST


ICAI gives brief idea about GST and its Benefits through their 2nd conceptual paper on GST .
Introduction of GST expected to be to bring drastic 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 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 way of removal of double taxation
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_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 VAT regime in 1920s . Maurice Laure , is considered as

the Father of Value Added Tax 4 regime who was the former Joint Director of the French
Tax Administration

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

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 .

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


liutsiPPlauqsaP410218

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

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 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 imposing GST or VAT

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

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 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.

All kind of goods and services without any

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

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
Uniform Method: Net banking should be used for tax payments . Other mode of
payment mechanisms is not allowed . Collection procedures of both CGST and SGST
are almost similar except additional information on the tax payment challan . Amount
of SGST can be paid through CGST challan and vice versa .

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

Government . Even though , Central 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-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 .

2.1.8 Shortcomings of prevailing tax system in India

Shri . Satya poddar and

Ehtisham Ahmad

were discussing about

prevailing tax system in India in their working paper


Considerations in India . According to Bagchi Report

shortcomings of

GST Reforms and Intergovernmental


tax regime prevailed before the

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

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 the study:
Phase I. The researcher carried out the document analysis to understand the prevailing
Tax system in India .

The generic pattern of the GST model in other developing

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

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 on various 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.
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

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
Tax

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
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

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 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 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


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 Product / National Income . Increasing trend in
implied tax buoyancy is due to the increase in national income and the reforms in tax policies .
Implementation of GST will increase the implied tax buoyancy . Economists are believing that
GST will contribute multifold increase in implied tax buoyancy in both the Direct tax and
Indirect tax .
27

Table 2. Central 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

Source :Estimation of tax buoyancies by MoF

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

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 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%

4.3.1 GST - Price Reduction in Intra- State supply


Let us consider the price reduction in Intra State supply where the commodities are transferred
from one place to other within the state. Assumed 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 )

90

Particulars
Value of Goods
Excise Duty @16%

29

SGST @ 9% (Rate is
assumed )
Total

0
1305

Total Indirect Taxes


in this transaction

90
1180

305

Price Reduction

180
Rs.125

Source : Prepared by Researcher

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 .

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


Let us consider the scenario of supply and re-supply of Goods /services in one State . Assume
the rate of tax is 9% .
The movement of goods is from Calicut 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 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 paid
Kochi dealer from SGST
(2)Calculating 9% CGST on value including the profit margin payable to Central Government.
But Central government will get the revenue amount 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 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 will reveal the efficiency of the GST regime
in the State border 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 of Rs. 3.2 will creates and treats the whole nation as a 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 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 like Kerala
should compensate to Central Government by transferring an amount which is equivalent to
SGST 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 by Central government and State

Government will be

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

Table 6. Sales Tax Collection 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 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

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 of VAT collection .
4.5.2 Non VAT collection
Sales taxes levied and collected by State Government which is kept outside the VAT 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 in Kerala

Non- VAT collection


Rs in crores

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

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 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 .

Table 9. Trend of Total 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
Average

15075.49

12795.4

27870.89
16172.65

9.83
16.72

Source : Prepared by Researcher , based on the 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 of 13.28% . 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.
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 . 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 Components of Total Tax Revenue of Kerala

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

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 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
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%

,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 .
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

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 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 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 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 .

Table 14. Trend of Sales Tax from Lottery

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

Source : Prepared by Researcher

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

Table 16. Trend of Central Sales Tax in Kerala

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

Sales Tax Revenue from Different Rates of Tax

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

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
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%

: 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 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

Sales Tax rates between 0.5 % to 5%

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%

Sales Tax (2015) - Out put 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 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

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

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

2011-12, All India GDP

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

percentage

20
15

Growth rate of GSDP


of Kerala (%)

10
5

Growth rate of All


India GDP(%)

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

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)
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%.

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 used to estimate future trend of GSDP of 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 * X + Axy

Regression Equation

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


Y = Rs.56329.5 cr

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 =


______________

Bxy = Rs. 1257791.8 cr

_
Axy =

Y Bxy * X

Axy = Rs. 7467608. 5 cr

Regression Equation

Y = Bxy * X + Axy

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


Y = Rs.13756567.5 cr

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

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

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

VAT collection (Base year 2005-06)


Rs in crores

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

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 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

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 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

Service sector is the dominating sector in

Kerala economy

. Manufacturing Industry has

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

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 .
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 (200515) , 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 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 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

. Remedial measures to be 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 .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%

: 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 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
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 band
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 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 .

58

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.

60

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22. Bhogavalli Gupta , Roll Up Your Sleeves for GST , Notion Press, Chennai ,2015 .
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