The Indian government has initiated a comprehensive review of the Integrated Goods and Services Tax (IGST) settlement mechanism following complaints from several state governments about revenue shortfalls. States like Tamil Nadu and Kerala have raised concerns that they are not receiving their due share of IGST, leading to significant revenue losses.
Key Developments
- Formation of Review Committee: A newly established committee, including both central and state officials, held its first meeting to address the issue of the "negative balance" in the IGST floating pool. The committee aims to identify states that have received more or less IGST than entitled and correct these discrepancies.
- Focus on Revenue Disparities: The committee is tasked with analyzing how much IGST has been transferred to each state and identifying any excess transfers that need to be recovered by the Centre. A series of meetings will take place, with the goal of submitting a final report to the GST Council by October 30.
- States Express Concerns: States such as Kerala and Tamil Nadu have voiced their concerns about IGST settlement imbalances. Kerala's State Fiscal Review Committee estimates a loss of Rs 35,000 crore in IGST transfers since the implementation of GST in 2017.
- Finance Minister’s Remarks: Finance Minister Nirmala Sitharaman, in a post-GST Council press conference, acknowledged the issue, stating that excess IGST transfers to some states need to be retrieved, while others are undercompensated.
Understanding IGST and the Settlement Issue
IGST is a tax levied on interstate transactions and imports, and its proceeds are split 50:50 between the Centre and the state where the goods or services are consumed. However, discrepancies in the settlement process have led to imbalances, with some states receiving more than their due share and others receiving less. This has led to the "negative balance" issue, which the new committee aims to resolve.
In FY25, IGST collections for April-July stood at Rs (-)10,659 crore, reflecting the ongoing settlement imbalance. With the review underway, the government hopes to correct these discrepancies and ensure a fair distribution of IGST among all states.
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