Kerala: The GST of it doesn't charm experts

Thiruvananthapuram: Noted tax expert Dr Jose Sebastian has put forward the counter-intuitive logic that the state’s service-dominated economy would not yield higher revenue under a GST regime. The widely held perception that a state dominated by the service sector will reap more under GST has been questioned in a preliminary study conducted by Dr Sebastian and Anitha Kumari L for Gulati Institute of Finance and Taxation.

“The basic premise of this study is that from the point of view of mobilising additional revenue what matters is not the size of the service sector (more than 60 percent of the state’s gross state domestic product is made up of the services sector) but the presence of taxable services and the size of the service providers,” Dr Sebastian said, during the Policy Dialogue Series organised by Institute for Sustainable Development and Governance (ISDG) here on Friday.

He said that the state’s “bloated service sector” was dominated by small-fry businessmen whose businesses fall below the turnover threshold limit of Rs 10 lakh. That the state has a narrow taxable base for service sector is revealed in the state-wise share of central service tax collection.  “Industrially advanced states of Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Tamil Nadu and West Bengal account for 62.85 percent of the total service tax collected in the country during 2012-13. Of this, Maharashtra alone accounts for 37.81 percent,” Dr Sebastian said. As for Kerala’s share, it is a paltry 1.3 percent.   

Nonetheless, he said GST would raise the tax revenue mainly on account of a fall in evasion. “Kerala is the capital of tax evasion,” Dr Sebastian said. Under the GST regime, penalty for evasion according to him would be “bitter”. To give a measure of the evasion he said that though the state accounts for 14.5 percent of the durable goods consumption in the country, the state contributes just 5.5 percent of total VAT collected in the country.