Central GST revenue down by 40%, J&K’s State GST in tatters

Ziraat Times Economic Analysis Desk

Srinagar: J&K’s GST collections are in tatters, mainly attributed to huge economic disruption in the post August 5-era and the ongoing Internet restrictions. This comes in the backdrop of the Central GST collection falling short of the budget estimate by nearly 40 per cent during the April-November period of 2019-20.

While GST returns filed in Jammu division had fallen to Rs 25 crore in September, compared with Rs 164 crore in July this year, no figures are available for the Kashmir division due to Internet ban, officials told Ziraat Times.  

According to the data presented in Parliament on Monday, the actual Central GST collection during April-November stood at Rs 3,28,365 crore while the budgeted estimate is of Rs 5,26,000 crore for these months, Minister of State for Finance Anurag Singh Thakur said in a written reply in Lok Sabha.

This could mean a lower-than-anticipated CGST disbursal to J&K, which, in turn, could inhibit its capacity to fund its 2019-20 budget commitments.

How Internet restrictions are crippling businesses

Internet restrictions are either wiped-out Internet-based or Internet-dependent businesses completely, mainly in the services sector. The worst hit are IT, customer support-based services, public tendering system, insurance, private education, contractual services.

Construction, manufacturing and trading are too badly hit. This disruption has resulted in subdued tax collections, reflecting in lower SGST collections. A considerable number of businesses have shut their operations in J&K, while there are also reports of flight of significant private capital.

Currently, only BSNL landline broadband service with 2G speed is functional in Jammu and a few places in Sambha, Kathua, Udhampur and Reasi districts, while the entire Kashmir region with 10 districts is without net facility, leading to the delay in filing returns. Government has made available Internet kiosks at certain government offices but they remain highly inadequate.

GST in Jammu & Kashmir in post August 5 era

As per the Jammu and Kashmir State Re-organisation Act, the State Goods and Services Tax (SGST) will continue, but there are apprehensions that the SGST for J&K might be completely subsumed into the CGST in the coming months.

However, most economic experts believe that SGST will have to continue because ultimately statehood has to be restored to J&K and that in the absence of SGST, implementation of CSGT on the ground will be difficult.

Unlike other states, GST in J&K was introduced in July 2017 only after the state assembly adopted a resolution, bringing the state’s indirect taxation into the new unified tax regime. Earlier, no service tax was imposed in J&K.

Although, technically, both J&K and Ladakh need to have separate GST systems now, economic experts feel that in practice the former state might actually end up with one GST system only, given that Ladakh’s tax base is too small.

“Creating a separate GST system for Ladakh UT might not be feasible as the cost to administer it would be almost the same as the quantum of tax revenue in the new UT”, said a economist.

Besides many procedural changes, companies in Jammu and Kashmir with a presence in Ladakh would now require separate registrations, execute other procedural formalities for a split, and also levy a GST for any supply between such business places. Industry players may also need to make procedural changes like state code amendments, nature of tax as UTGST vis-a-vis SGT for supplies to J&K etc. None of that has happened so far.

With the suspension of the Article 370 and the direct extension of central laws to Jammu & Kashmir, the central government would be required to set up a GST Appellate Tribunal.

What remains to be seen is how the new entities of J&K and Ladakh would fund their budget commitments in the probable scenario of lower tax revenue due to subdued business environment and flight of private capital.

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