Shakeel Maqbool
It has been six fiscal cycles since GST was implemented in Jammu and Kashmir replacing the erstwhile VAT regime in 2017. The average monthly revenue of GST has increased from Rs 456 crores in 2018-19 to Rs 667 crore in 2023-24. Despite a fall in collections during the Covid lockdown, GST collections have made a remarkable turnaround from the fiscal year 2021-22. The budget expenditure of J&K has also grown from Rs 67,000 crore to Rs 108197 crore in 2023-24. The own tax revenues now contribute 6.56% of the budget, up from 5.77% in 2019-20. The GST revenue is the backbone of J&K’s own tax revenue.
The GST collections from within Jammu and Kashmir have grown at rate of 25% in the last fiscal. However, the revenues accruing to Jammu and Kashmir from GST have grown at a rate of 12%. This huge discrepancy in the two rates of growth requires a little deeper examination and explanation.
GST collections made within a jurisdiction are primarily of three types. One is SGST and the other two are CGST and IGST. These taxes are distributed between the Central and State jurisdictions based on the destination of the goods and services being supplied. So, for example, in case of intra state supplies whatever tax is collected under GST in Jammu and Kashmir around 50% of it goes to the exchequer of Jammu and Kashmir Government as SGST whereas the other 50% goes to the Central Government. In case of inter state supply where the goods and services taxed are actually consumed outside Jammu and Kashmir, the IGST Tax collected is distributed between the Central Government and the jurisdiction where the supply is consumed, which is to say, the states making purchases from Jammu and Kashmir. This is based on the principle of destination getting the benefit of tax. Similarly, Jammu and Kashmir gets a portion of GST collected from other States and Union Territories as IGST, in cases where the destination of the goods and services is Jammu and Kashmir.
So now we are looking at two different arenas. One is the tax collected from within a jurisdiction and the other is the tax actually apportioned as revenue to a particular jurisdiction.
The latter depends on not just the tax collected within the jurisdiction, but also on the taxes collected from other jurisdictions which accrue on the basis of destination principle to the importing jurisdiction, i.e., the place of supply.
During the last fiscal, the taxes collected from Jammu and Kashmir under the GST head have grown at 25% against a national average of 15%. In other words when looking at the whole country, the jurisdiction of Jammu and Kashmir has shown an impressive growth rate in GST tax collection.
However, at the same time the GST revenues that have accrued to Jammu and Kashmir have grown only at 12% against a national average of 13%. This gap suggests that the portion of GST revenue that comes on the basis of imports and destination principle that is IGST has grown at a sluggish pace.
In fact, the figures show that the IGST growth rate has been around 11% . The GSDP of Jammu and Kashmir for the last fiscal as per the budget documents has also grown at around 7.5%. So, it can be deduced that the growth in the IGST tax has been just a little better than the growth of the economy in Jammu and Kashmir whereas the growth in SGST and CGST taxes has far outpaced the growth rate of economy.
This above average growth in GST collections under SGST head, that is the tax collected within Jammu and Kashmir, despite the sluggish pace of GSDP growth, can be attributed to increased tax enforcement, efficiency in tax collections and curbing of tax evasion. In other words, it can be said that the efforts of the State Tax Department reflect primarily in the growth of SGST, that is to say, in the growth of taxes collected within Jammu and Kashmir. In Tax parlance, this is also known as cash growth as against settlement growth which is used to refer to the growth of IGST. In simpler terms, it can also be understood as the share of Jammu and Kashmir from the Tax under GST collected in the rest of the country against the imports made to Jammu and Kashmir. Considering a SGST growth rate of 25% and an IGST growth rate of 11%, the total GST tax revenues of Jammu and Kashmir have grown at 17%. However, the growth rate in GST receipts has been shown at 12%. What explains this discrepancy? The answer lies in the ad hoc settlement received by J&K in the Fiscal year 2022-23. Now what is an ad hoc settlement?
At the end of every month, the Central Government transfers the share of GST tax to each State and Union Territory collected from other jurisdictions based on the destination principle. In other words, the tax paid on any goods and services that are produced in one state but consumed in another are collected in the producing state and then transferred to the consuming state as well as well as shared with the Central Government in a preset ratio.
If it so happens, that the total taxes collected across jurisdictions on interstate supplies are more than the total taxes put together, as claimed by the importing jurisdictions, the Central Government ends up with a net surplus of IGST to be settled. The reverse can also be true, and the Central Government can have a situation of a net deficit of IGST to be settled. When the Central Government has a net surplus of IGST, it transfers the surplus amount of IGST to the States and Union Territories in advance. This is known as an ad hoc settlement. In case there is a net deficit of IGST, the Central Government proportionally deducts the deficit from the settlement due to each State and Union Territory.
In the FY 2022-23 the Jammu and Kashmir government had received an ad hoc settlement of 299.35 crores in advance. In stark contrast, during the last financial year, the Jammu and Kashmir government has only received an advance settlement of 35 crores. In fact, an amount of 99 crores was deducted from the settlement due to Jammu and Kashmir on account of IGST for the month of November 2023. The combined effect of advance in the denominator and the deducted settlement in the numerator is the reason why the actual revenues on account of GST accruing to Jammu and Kashmir show a growth of just 12% as against an actual GST revenue growth of 17%. Pertinently both the Kashmir and Jammu divisions have also reported a revenue growth rate of 17%.
To summarize, for the financial year 2023-24, the GST collections made from J&K have grown at 25 % and the GST revenues accruing to Jammu and Kashmir have grown at 17%. However, when the advance revenue received in Financial Year 2022-23 is adjusted, the GST receipt growth for FY 2022-23 becomes 12%.
(The author is Additional Commissioner, State Taxes Department J&K Government).
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