When a Malayali binge-watcher quickly signs up on an OTT app and picks Andaman & Nicobar Islands from the dropdown menu — simply because it comes first — the money he pays in GST doesn’t reach Kerala. It goes to Andaman. And that tiny click, repeated thousands of times across online purchases, is quietly bleeding Kerala’s tax revenue dry.
For a consumption-driven state like Kerala, this small digital oversight is proving costly. Despite strong GST collections, Kerala’s revenues are not keeping pace — and the culprit, officials said, is the faulty recording of the “place of supply” in interstate transactions.
“It’s not tax evasion,” clarified an official with the state GST department. “The tax is being paid, but it’s being credited to the wrong state. And we have no jurisdiction to correct it.”
The Goods and Services Tax (GST) was designed to create a seamless national market by merging dozens of central and state taxes. It has three components — CGST (Central GST), SGST (State GST) and IGST (Integrated GST) — depending on where the goods or services are consumed.
When a transaction happens within a state, both CGST and SGST are charged, with revenue shared between the Centre and that particular state. But when a transaction crosses state borders — like a Kerala resident buying a phone from a Karnataka seller — IGST comes into play.
The problem lies in how sellers record these transactions. Under the GST law, the state entitled to a share of IGST is determined by the ‘place of supply’ — essentially, the customer’s location.
“If the seller in Karnataka doesn’t record Kerala as the place of supply, that share of IGST never reaches us,” explained another official. “It stays with Karnataka as SGST. We can’t inspect those dealers or recover that amount.”
For Kerala, which imports far more goods and services than it produces, this flaw cuts deep. Every wrongly filed interstate transaction means money leaking away from the exchequer. “For Kerala, where most purchases come from outside — from TVs to food processors to OTT subscriptions, every incorrect ‘place of supply’ tag means direct loss.”
Kerala’s GST team even ran its own audit last year, studying invoices from online purchases made by its own officers.
“In a significant number of cases, Kerala didn’t appear at all as the destination state,” said the official. “The system sees the seller in Tamil Nadu or Karnataka as compliant — but we never get our share.”
This issue has exploded with the rise of digital commerce. On platforms like Amazon and Flipkart, small sellers often use outdated billing systems or leave the ‘place of supply’ blank. Others, unaware of the rule, treat interstate transactions as local ones. “It isn’t intentional. They’re not avoiding tax; they’re simply filing it wrong. And since the transaction looks legitimate in another state’s records, Kerala can’t claim the lost share,” the official said.
Following persistent pressure from Kerala and other consumer states, the GST Council recently amended the law to make it mandatory for e-commerce platforms to record the place of supply. “It will help, but the impact will take time,” the official said. Up to September, Kerala’s GST collection stood at `17,951 crore, marking a robust 11% year-on-year growth. Yet, GST revenue credited to the state was only `16,154 crore, a meagre 2.2% growth. This, officials said, could have been close to 8% — if not for a `965-crore deduction made unilaterally by the Centre from the state’s IGST pool in April.
“Many states face a gap between collection and revenue growths. In the case of Kerala, it’s sharper because of our high consumption profile. We contribute to national GST, but don’t always get back what’s due,” the official said.
State GST officials said they can manage collections within the state but have little control over what happens outside.
Kerala has sought detailed interstate transaction data and item-wise IGST settlement reports, but clarity remains elusive.
Eight years after GST promised a unified tax regime, Kerala still finds itself short-changed — not because of poor performance, but because of misplaced data entries.
Money leaking
- For Kerala, which imports far more goods and services than it produces, every wrongly-filed interstate transaction means money leaking away from the exchequer
- This has exploded with the rise of digital commerce. However, since the transaction looks legitimate in another state’s records, Kerala can’t claim the lost share
Source from: https://www.newindianexpress.com/states/kerala/2025/Nov/12/one-click-that-costs-kerala-crores
