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Kerala has expressed concern over the upcoming GST rate cuts, warning that the state could lose INR 8,000-10,000 crore every year. Finance Minister KN Balagopal welcomed the move to two slabs of 5% and 18% but stressed that without a compensation mechanism, states will struggle to fund welfare programmes. Goods alone are expected to contribute about INR 6,300 crore of the revenue loss. Kerala also pointed out that its consumption basket is more skewed toward higher-rate items, making the impact more severe compared to the national average.
Kerala's Finance Minister KN Balagopal has said that while GST rate rationalisation should benefit consumers, the absence of a compensation system could place a heavy burden on state finances. He noted that Kerala is likely to lose between INR 8,000 crore and INR 10,000 crore annually because of the new rates. Advertisement
Balagopal pointed out that progressive taxation should ensure higher taxes on luxury goods and those with high consumption among wealthier groups, rather than a blanket reduction across all categories. He underlined that tax policies should support growth that benefits the whole country and not just certain sections.
The GST Council, which represents both the Centre and the states, has approved a simpler two-slab structure of 5% and 18%, replacing the earlier four slabs of 5%, 12%, 18% and 28%. These changes will take effect later this month and are expected to reduce prices for many items. Kerala welcomed the reform in principle, but Balagopal made it clear that without financial safeguards, the state's public finances could weaken.
He reminded that when tax rationalisation was introduced in 2017-18, the expected reduction in consumer prices was not fully passed on to the public. This time too, he said, the benefits must reach ordinary consumers. He explained that for states, GST, sales tax and Value Added Tax remain key sources of revenue, unlike the Centre, which has more tax options. Without compensation, states may find it difficult to maintain welfare commitments in healthcare, education and public distribution.
According to the Gulati Institute of Finance and Taxation, Kerala's annual revenue loss from the revised structure is expected to be INR 8,000-10,000 crore, with nearly INR 6,300 crore of this linked directly to goods. Balagopal argued that while the new framework assumes revenue neutrality nationally, states like Kerala where consumption is tilted towards higher-rate items will suffer a much sharper impact than the average.
State data also shows that if Kerala's GST revenue had grown by about 12% annually after the end of the earlier compensation period, the state would have received around INR 51,892 crore in 2024-25. Instead, the actual GST collection stood at only INR 32,773 crore, marking a significant shortfall.
Balagopal also stated that while India's economy is growing strongly, the benefits should be distributed fairly. He cautioned that if states are left without resources for welfare activities, then the meaning of development itself comes under question.
Source PTI
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