The Central Government has established an internal committee to investigate the "negative balance" in Integrated Goods and Services Tax (IGST) collections, a move that tax experts attribute to excessive IGST transfers to some states due to settlement discrepancies.
Experts suggest that this negative balance could be caused by timing mismatches in tax collections and distribution or errors in the tax settlement system. In some cases, states have received higher-than-expected IGST settlements, leading to imbalances in the central government's accounts.
Finance Minister Nirmala Sitharaman recently acknowledged this issue, noting that the government needs to retrieve excess IGST allocated to certain states over the years. This "negative balance" has grown steadily, with IGST collections showing a deficit of Rs (-)10,659 crore in the April-July FY25 period, compared to Rs (-)9,144 crore in the same period last year.
IGST, a tax on interstate transactions and imports, is divided between the central and state governments in a 50:50 ratio. The state where consumption occurs receives the IGST settlement under the destination-based tax principle. However, errors in settlement processes have led to some states receiving disproportionately high transfers.
Tax experts believe the negative balance stems from ad hoc payments to states pending full reconciliation. Some states, such as Tamil Nadu and Kerala, have raised concerns about receiving lower-than-expected IGST transfers, with Kerala's government estimating a Rs 35,000 crore loss since the inception of GST in 2017.
The new committee, headed by the additional secretary of revenue, will work with both central and state officials to assess the IGST settlement mechanism and determine how excess transfers can be recovered. The move aims to restore balance in IGST collections and ensure a more accurate distribution of tax revenue.
CAclubindia
