Corruption almost nil in Kerala, most taxpayers are honest

Shaik Khader Rahman, chief commissioner of Central Goods and Services Tax (CGST) and Customs, Kerala, has been successful in increasing GST revenue and reducing litigations in the state. An IRS officer with 32 years of service, he has won accolades by reducing smuggling and developing IT architecture for tax officers, besides serving as a defence counsel in the Tax Tribunal. In an interaction with TNIE, he shares his thoughts on a wide range of issues connected to commerce in Kerala. Excerpts Whats your first impression of working in Kerala? Keralas work culture is slightly different from the rest of India. People here are very intelligent and knowledgeable. The work culture, its different from that of Mumbai. The same Malayalis who are working in Mumbai are the best in the country (laughs). Here, it took me a month to understand the ethos. Peoples attitudes are also good, just that you have to understand them. The north Indian feudal system wont work here. I didnt have any difficulty in gelling with the people here. What problems do you find here in terms of tax collection? The revenue growth in Kerala from 2023-24 to 2024-25 is only 5%. If you look at the last three years, the total revenue collected from excise taxes is around Rs 26,000 crore. But the entire GST in this state is only Rs 18,000 crore. I have around 1.67 lakh taxpayers. I get 60% of the revenue, which is Rs 18,000 crore, while the Kerala government -- which has 2.16 lakh taxpayers -- gets below Rs 15,000 crore. So, the first task I focused on with my team was to increase revenue. T he GST regime was expected to benefit Kerala, a consumer state. But tax collection was not robust... The number of industries in Kerala is low. We only have services here. Of the Rs 18,000 crore GST revenue, nearly 75% comes from services. Since there are only a few industries, the revenue from the supply of goods is lower. For tourism and hotel purposes, the place of service is the place where the hotel is located. If a Delhi-based company conducts an event here, they may engage an event manager, and the CGST, IGST invoice is issued to that company. Thus the money goes out. How does the Centre distribute money? The SGST revenue goes to the state. But the IGST money is deposited in the consolidated fund of India and 60% of the revenue comes back to the state. The GST Council has a formula. Every three to four months, they distribute IGST. The central government takes time to distribute. What should Kerala do to increase GST revenue? Kerala has some great positives. The states land records are very good and the people are educated. Kerala has won awards for fastest GST registration and settling disputes. The lawyers here are very good and disputes are resolved faster. We managed to resolve most disputes within 3-4 months. However, there is no growth in GST registrations. My concern is how to expand the tax base. Weve dispelled the fears of those in the informal sectors through interactions and trade facilitation meetings. Kerala has commodities like spices, coir, seafood, and cashew. We are planning to approach traders through commodity boards, listen to them, and solve their problems. Around 40% of the problems can be resolved through negotiations. We dont file a case against them, but nudge them to take GST registration. Another great thing about Kerala is that corruption is almost nil in the state. Once the tax base widens, believe me, Kerala will undergo a transformation. At least from the point of view of indirect tax, it will become Kerala 2.0. We expect a 20% increase in GST registration in the next three months. Whats the indirect collection for the state in value terms? We have set a target of Rs 53,610 crore for the departments of customs, central excise, and GST. Last year, the GST collection was Rs 18,371.25 crore and the target for the GST department this year is Rs 20,940 crore. The GST collection in 2024-25 was Rs 17,773 crore, and the growth rate was only 3.4%. Now, for the first four months, my growth rate is 15.7%. The GST growth rate in north Kerala is 20% and that of south Kerala is 27%. However, the growth in central Kerala is only 5%. If I can maintain a growth rate, the GST collection for the year will be Rs 21,126 crore. Why is there such a drastic difference in GST collection? North Kerala has a lot of potential but remains untapped. There are well-established industries in south Kerala. Though central Kerala is known as the financial capital of Kerala, it doesnt have the tax base. Where are the industries and the taxpayers? The only industries are BPCL, which is giving central excise revenue, and Cochin Shipyard. Does it mean the industries in central Kerala are non-compliant? No, they are complying. Around 85% of the taxpayers in Kerala are honest. None of them intentionally avoid tax. I have worked in many states, and compared to my experience in those states, I can confidently say that intentional evasion of tax is very low in Kerala. It is not that the taxpayers in central Kerala are not paying. The revenue from BPCL goes to the central excise department. Does the state receive a share of the central excise revenue? The state receives a share of the central government revenue through the Finance Commission. The state receives the entire amount collected through state GST and 60% of IGST. Apart from that, a share of central GST also comes to the state. What are Keralas strengths and weaknesses in GST? People in Kerala tend to litigate a bit. I tell chartered accountants and cost accountants that, in case of a dispute, they can pay the disputed tax along with interest and 15% of the disputed amount as penalty. No show cause notice will be issued. As they are not attempting to avoid tax intentionally, there wont be any penalty. Im trying to make people understand, Lets not litigate. Is litigation high here? No. Im bringing pending litigation to zero. Litigations, per se, are not high in Kerala. I went to the Thrissur Chamber of Commerce and they said it was the first time a chief commissioner had come to talk to them. I also visited the Kozhikode Chamber of Commerce and held discussions. People understand that when the department is coming two steps forward to shake hands, (it is best to) seize the opportunity. Where does the 20% increase in GST revenue come from? During the first five months, the additional revenue came from existing taxpayers. Ive only sown the seeds to increase the number of taxpayers and Im sure it will grow within the next three months. Which sectors are you targeting? Tourism, rental properties, hotels, restaurants, etc. Rs 20 lakh per year is not a big amount and every restaurant is earning more than this amount. Theres huge potential in the rental sector. Have you carried out any study in that regard? No. Im meeting representatives of the coir sector in Alappuzha, rubber sector in Kottayam and the cashew sector in Kollam. I tell them: We will facilitate your exports by putting up a fast-track channel. The exporters can seal the cargo at their factory. Its a one-time permission, valid lifelong. And then you can move the container to whichever customs station you want. In the customs sector, we get a revenue of hardly Rs 4,000 crore because revenue comes from imports, not exports. But Kerala is also one of the worlds biggest exporters of spices and cashew. Cashew was once the pride of Kerala. But today, Vietnam is number one. And Keralites who have shifted to Vietnam are running the business there. They moved out due to inadequate care and support. Exports can move through courier, post, or regular cargo. The director general of foreign trade (DGFT) has set an exports target of Rs 300 billion in the coming years, of which Rs 200 billion should come via e-commerce. Kerala, especially north Kerala, is ideally placed for this. Handloom, agriculture, handicrafts, artefacts... everything can be displayed online. Kerala has four international airports and two-thirds of its passenger traffic is international. You also have four notified minor ports: Azhikkal, Beypore, Kollam, and, of course, Cochin (Kochi). And now Vizhinjam. So, the exporters can use the nearest customs station to file the shipping bill, complete customs clearance, and then move the cargo to the major port. But there are reports that many exporters in Kerala are depending on the Mangaluru port? True. Exporters told me Kochi is too far and too costly for them, so they prefer Mangaluru. In fact, footwear exporters from Kozhikode are even sending cargo via Mumbai! Which means Kerala is losing revenue. Thats why I have been pushing for the use of minor ports. Whether or not a major shipping line calls there, our customs stations are available. Unfortunately, customs preventive units are only focused on anti-smuggling. Smuggling by boat from Dubai is history now, but our staff mindset hasnt changed. We are now training and re-orienting them. I told my officers: Your role is not just preventive. You can multitask. At Beypore, Azhikkal, Kollam... you can process shipping bills, allow clearance, and connect to the central server. Exporters dont need to go to Kochi every time. What are the advantages of Vizhinjam? Once Vizhinjam port becomes fully operational, south Kerala will transform into a true blue economy. Logistics operators, marine services, and shipping stakeholders will come. Our customs office was ready well ahead of the inauguration, and it is the second biggest after Kochi. But the import and export of cargo hasnt started. Operators say they dont have road connectivity. I told them they can move goods by barges to the nearest port, like Kollam. Im sure this is going to happen in the next three months. Vizhinjam port is strategically located and well get connectivity to the Far East, Southeast Asia, Europe, and the US. The freight charges are expected to decrease by 40%. Is Vizhinjam port a game changer? It is a game changer. Blue economy will rule south Kerala. My vision is that my customs stations should be ready to provide service. If you dont want customs clearance for your cargo at Vizhinjam, you can take it to Kollam by availing Sub Manifest Transhipment Permit (SMTP). The importer can produce the bill of entry and pay the duty to take the cargo. Who carries it to Beypore, Im not sure. The problem with Beypore is that the draft is low. Any study on exporters shift to Mangaluru? I have the data on exporters from Kozhikode and Kannur going to Mangaluru. I interacted with those in Kozhikode. They used to import dates through Beypore and palm oil through Azhikkal port. I told them, If you kill the trade in Kerala, other states will flourish. From Kochi, people are going to Mumbai. Exporters complain that labour cost and turnaround time are high in Kochi. Cant these problems pose challenges to Vizhinjam too? Vizhinjam can overcome that as it can handle a huge number of transshipments. How will the opening of Vizhinjam affect the Vallarpadam terminal? Vallarpadam is fighting for survival and will have to cut costs heavily. They have already decided to expand their business. I have offered them all support. We have worked out a plan with them too. And how to manage the draft problems at Azhikkal and Beypore are issues the state government has to address. I interacted with the chief secretary and other officials on these issues. Im very happy with the way the state government is cooperating to solve GST issues. Kozhikode airport was infamous as a gold-smuggling hub. Whats the status now? (Laughs) Now, there is no gold smuggling. I agree Kozhikode had a bad reputation. But the number of cases has come down recently. After March 24, we havent witnessed any gold smuggling at Kochi, Kozhikode, Thiruvananthapuram, or Kannur airports. The cases have come down at all airports. We havent seen any gold smuggling rackets or institutional arrangements for smuggling. There are sporadic incidents. It isnt profitable to smuggle gold now, at this rate. Which airport has the largest number of cases? As per the earlier data, it is Kozhikode. Still, I want to defend Kozhikode. The perception has to change. There are allegations that customs officers are involved in gold smuggling... I know there were some disputes between the customs and the police in the past. Because some people managed to escape without being caught by the customs department, does it mean that we are supporting smuggling? We cannot perform 100% checking. Can police say that customs knowingly allowed a person to escape? We have a good relationship with the police, why do you want to spoil it? Whats the economics behind gold smuggling? Is it only to evade tax? I dont know about Kerala. But in Mumbai, there are some people who buy gold abroad and send it through carriers, who are mostly genuine passengers. They send 10 consignments. The rate at which it is available is Rs 100. If I land in India, the rate will be Rs 124. Bringing gold in huge quantities was profitable due to the huge difference in duty. Now, the rate of profit is very low because the rate of duty has come down. If I catch them, I will get a 20% reward from the government. And the punishment for smuggling? One is that the entire gold goes to absolute confiscation. A penalty is imposed. Then we launch prosecution. There are two kinds of proceedings. One is quasi-judicial proceedings, where we adjudicate, and the entire gold is taken over. The other is criminal proceedings. He (the carrier) may be sentenced to three years imprisonment. He will be jailed and will have to pay a penalty. Is there no provision to pay the duty and get the gold back? No. We dont have the option to release the gold on payment of duty. In the airport, we dont collect revenue. You are allowed to take baggage and jewellery. If you are bringing 10 laptops, it will be considered a commercial trade. Hence, we will confiscate, impose duty, and clear them. In the case of gold, generally, absolute confiscation is done. If you have something to declare, you can. What happens to the confiscated gold? We had a huge stash of gold. Thanks to an initiative by the finance minister, theres no gold in customs warehouses now. As per the new procedure, we can dispose of the gold. The SPMCIL (Security Printing and Minting Corporation of India Limited) picks up the gold from our godowns, values it, and converts it into gold bars. It is delivered to the Reserve Bank of India for sale at market rate. Has there been any increase in drug trafficking through the sea? There hasnt been any report of smuggling at seaports. It isnt profitable. Whats your opinion on the customs department in Kerala? Many people have a wrong perception about the customs department. My experience is that Kerala customs is the best. There is absolutely no corruption. In Delhi and Mumbai, the officers have political and other pressure. Here, when I ask them to serve at the airport, they refuse. I couldnt understand why. After one month, I realised there is no corruption here, which is why people dont want to go to the airport. They are reasonably honest. Will GST rationalisation affect Keralas lottery income? The state government is the biggest taxpayer in Kerala. The lottery system here is state-run, and hence, the government pays a huge amount in GST. The rate of duty for the state-run and private lotteries is fixed. Earlier, there used to be a huge difference in the tax for the public sector and private sector. Of course, the rate of duty is high. And because of this, the state government has been listed as a taxpayer with the central government. It pays huge GST to the central government. Hence, lotteries are a huge revenue source for the GST department. Kerala is one of the largest consumers of jewellery. The annual consumption is around 750 tonnes. But GST collection is below Rs 1,500 crore. Many say there is a huge underlisting. Have you investigated that? Invoices are raised for business-to-business transactions. We have e-invoices. Thats done systematically. Business-to-customers is one area where some revenue leakage might happen because the customer wants cost reduction. The government launched a campaign emphasising on the need to obtain a bill for every purchase. Some economists say the consumption in white goods is not reflected in the tax... I partially agree with that. Considering the level of wealth in Kerala, there could be some leakage here and there. The DGGI needs to be alerted and sensitised about this. The more trade facilitation you do, you know its like a balance. Before we search any office or shop, we have to obtain permission from senior officers. What about the proposal to have an e-way bill to transport gold? Kerala was the first state to ask the GST council for it... The e-way bill was not applicable for jewellery and gold ornaments in India, but Kerala asked for it and it has been implemented. It is mandatory only in Kerala. The state government is responsible for it and we dont make e-way bill cases. The GST for banana fritters is 18% while other sweets and savouries are charged just 5%... The rate issues are political decisions. It is to be streamlined, rationalised, or corrected by the GST Council. You have to approach the finance minister of the state who attends the GST council. Food items, per se, are sensitive issues. TNIE team: Cithara Paul, Rajesh Abraham, Rajesh Ravi, Manoj Viswanathan, Harikrishna B T P Sooraj (photos) Pranav V P (video)