Kerala Experiences Yearly Revenue Decrease After GST Reductions, States Finance Minister's Assertion: 'States Require Compensation'

The GST Council, in a unanimous decision passed on Wednesday, has approved a two-rate structure from the current four slabs. This move is expected to result in rate cuts for personal-use items and aspirational middle-class commodities such as air conditioners and washing machines.

However, the financial implications of this rate rationalisation are causing concern, with estimates suggesting a total revenue loss of Rs. 93,000 crore. The broader concerns from states regarding revenue losses from the revised tax structure have been raised by Kerala Chief Minister Pinarayi Vijayan.

Kerala's State Finance Minister K N Balagopal has predicted an annual revenue loss of Rs. 8,000 crore to Rs. 10,000 crore for his state due to the new GST rate cuts. He has warned that the reforms could have a "worst impact on public finances since Independence."

The estimated annual revenue loss from four sectors - cement, electronics, auto, and insurance - is Rs. 2,500 crore. The financial implications of the rate changes are expected to be Rs. 48,000 crore. Despite these concerns, Revenue Secretary Arvind Shrivastava has stated that the financial implications are "fiscally sustainable for Centre and State."

The Central government has reviewed the GST compensation fund, held consultations with state representatives including Kerala’s finance minister K N Balagopal, and allocated funds based on GST revenue shortfalls to ensure welfare initiatives can continue despite GST reforms. However, no information has been provided about any compensation for states due to the GST rate changes.

The issue of compensation for states due to the GST rate changes was not taken seriously during the GST Council meeting. Kerala's State Finance Minister K N Balagopal has requested the intervention of Prime Minister Narendra Modi to address these concerns.

It is worth noting that individual life and health insurance premiums have been exempted from GST. The GST Council has also decided to consider providing compensation to states due to the GST rate changes, but no details have been released as of yet.

In conclusion, while the GST Council's decision to approve a two-rate structure may bring relief to consumers, it has raised significant concerns about the potential revenue losses for states and the overall financial sustainability of the reforms. The Central government and the GST Council will need to address these concerns to ensure the smooth implementation of the revised tax structure.

Kerala Experiences Yearly Revenue Decrease After GST Reductions, States Finance Minister's Assertion: 'States Require Compensation'