Presenting a comprehensive overview of the state's revenue landscape since the implementation of GST on July 1, 2017 during the first meeting of the Group of Ministers on analysis of revenue from Goods and Services Tax (GST) held in New Delhi, Punjab Finance Minister Advocate Harpal Singh Cheema emphasized on bringing structural changes in the GST regime and proposed policy recommendations for revenue augmentation, including food grains under the GST framework, reducing or nullifying the inverted duty structure, and making e-way bill generation and e-invoicing mandatory.
He also suggested that a unified platform can be developed, giving access to all States and the Central Tax Authority for data analytics and detecting tax evasion and compliance issues. Highlighting the significant revenue loss Punjab has faced due to the subsumption of various taxes after the implementation of GST, Finance Minister Harpal Singh Cheema said that Punjab, as an agrarian economy, heavily relied on Purchase Tax and Infrastructure Development Fee (ID Fee) on sale of grains (Wheat and Rice), collecting Rs 3,094 crores in 2015-16, which represented 16.55% of its total tax revenue, and experienced a permanent loss of revenue as a result of subsuption of these taxes.
He also pointed out the loss from the subsumption of Central Sales Tax (CST), which previously contributed Rs 568 crores to Punjab's revenue in 2015-16. Furthermore, Finance Minister Cheema highlighted that under the previous VAT regime, Punjab had a higher collection of revenue as compared to GST regime.
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% growth rate on the base year. He said that had GST not been implemented, Punjab's revenue position would have been better, even with a conservative 10% CAGR growth.
He said that Punjab has faced a revenue shortfall of Rs 47037 crore since 1st July 2022. He said that states dependent on agriculture, like Punjab, should be compensated for the permanent loss of revenue due to the subsumption of purchase tax on food grains.
Finance Minister Harpal Singh Cheema 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.
Calling for policy intervention to reduce or nullify the inverted duty structure in GST, the Finance Minister Cheema said that it leads to substantial refunds and lower cash collections for the state. He said that approximately Rs 1,200 crores in refunds are disbursed annually by Punjab due to inverted duty structures and exports, further impacting revenue.
Further recommendations included making e-way bills mandatory for evasion-prone commodities irrespective of the threshold, mandatory e-invoicing for B2B supplies for manufacturers and B2C supplies, mandatory mapping of IP addresses with GSTN and E-way bills for tracking fraudulent taxpayers, and the introduction of geo-fencing.
Finance Minister Harpal Singh Cheema also advocated for the development of a unified AI-based platform for data integration from various government portals for both central and state tax authorities, and mandatory biometric authentication for taxpayers registered before its implementation based on risk profiling. Lastly, he proposed automating ITC claims in GSTR 3B forms, limiting claims to the amount available in GSTR 2B to mitigate fraudulent claims.
Finance Minister Harpal Singh Cheema concluded by stating that despite Punjab's leading efforts in collection efficiency and revenue maximization, the state faces persistent challenges in revenue generation. Given its landlocked, agrarian nature, the Punjab Finance Minister emphasized the need for consideration to include food grains under the GST framework to address the ongoing revenue deficit.