Punjab FM Harpal Cheema for structural changes in GST regime

Finance Minister Harpal Singh Cheema on Friday stressed the need to bring structural changes in the Goods and Services Tax (GST) regime, saying the state faced a revenue shortfall of Rs 47,037 in the past three years alone due to the subsumption of various taxes.

During a meeting of the group of ministers (GOM) to analyse the GST revenue, Cheema stressed the need for consideration to include foodgrains under the GST framework to address the ongoing revenue deficit, given Punjab’s landlocked and agrarian nature. He also suggested the creation of a unified platform, helping all states and the central tax authority to detect tax evasion and compliance issues.

Highlighting the revenue loss Punjab faced due to the subsumption of various taxes, Cheema said the state heavily relied on purchase tax and infrastructure development fee on the sale of grains (wheat and rice).

He said the state collected Rs 3,094 crore in 2015-16, which represented 16.55 per cent of its total tax revenue.

He said the state faced a permanent loss due the incorporation of these taxes in the GST. Cheema also highlighted the loss from the subsumption of the Central Sales Tax (CST), which contributed Rs 568 crore to Punjab’s revenue in 2015-16.

The Finance Minister said under the previous value added tax (VAT) regime, Punjab had a higher collection of revenue.

The minister expressed concern over a consistent shortfall in Punjab’s GST collection since July 2017, with actual revenue significantly lower than the projected revenue based on a 14 per cent growth rate on the base year.

He said had the GST not been implemented, Punjab’s revenue position would have been better, even with a conservative 10 per cent CAGR growth.

He said Punjab had faced a revenue shortfall of Rs 47,037 crore since July 1, 2022.

The minister said the states that depend on agriculture, like Punjab, should be compensated for the permanent loss of revenue due to the subsumption of purchase tax on food grains. He also highlighted a paradoxical situation where major industrial sectors in Punjab, such as agricultural implements, cycle and cycle parts and hosiery goods, show high gross turnovers but do not exhibit a commensurate increase in GST collection.

“This is largely due to GST being a destination-based consumption tax, leading to revenue flowing out of Punjab through SGST input tax credit adjustments against IGST liability, creating a net outflow of revenue,” the minister said.

Calling for policy intervention to reduce or nullify the inverted duty structure in the GST, Cheema said it led to substantial refunds and lower cash collections for the state.

“Approximately Rs 1,200 crore in refunds are disbursed annually by Punjab due to inverted duty structures and exports, further impacting revenue,” he said.