Kerala likely to press for continuation of GST compensation at council meet

Kerala is expected to press for the continuation of the Goods and Services Tax (GST) compensation to States at the upcoming GST Council meeting in the context of the proposed GST shake-up and the impact of the U.S. tariffs on the State’s exports.

Kerala has repeated the demand for the continuation of the GST compensation and protecting the revenues of States in view of the two developments.

“The revenue loss will force governments to cut down on spending. There is also a possibility that welfare measures and infrastructure development projects will be affected. The Centre has the responsibility to address the revenue loss faced by the State. The term of the GST compensation also should be extended,” Mr. Balagopal said on Thursday.  

In a letter to Prime Minister Narendra Modi on Wednesday, Chief Minister Pinarayi Vijayan had conveyed the State government’s concerns with respect to the GST rejig and underscored the need to protect the revenues of States.

The Kerala government’s views on the matter has come ahead of the GST Council meeting on September 3 and 4 which will discuss the proposals to restructure the present four-tier tax slabs to two.

After the five-year GST compensation ended in 2022, Kerala and other States have been demanding its extension citing the impact of the COVID-19 pandemic on States’ economies. This demand has been renewed in the new scenario.

According to Mr. Balagopal, the reforms have been proposed without undertaking any study on the implications on tax revenues. If they are implemented, Kerala alone stands to lose ₹8,000 crore to ₹9,000 crore in its revenues as per initial assessment, he said.

Likely loss for Kerala

Reduction of tax in the automobile sector from 28% to 18% would deprive Kerala of ₹1,100 crore annually. A large portion of the consumer goods sold in Kerala fall in the 18% to 28% tax brackets. Kerala would be deprived of ₹500 crore through the GST exemption on insurance premium, he said. The proposal to increase the tax on lotteries from 28% to 40% could cripple the Kerala State Lotteries, Mr. Balagopal said. More than 2 lakh people are dependent on the State lottery for their livelihoods, he said.

While the Union government has pegged the revenue loss from the proposed GST reforms at ₹60,000 crore, the general assessment is that the losses would be closer to ₹4 lakh crore, Mr. Balagopal said.

Tariff impact

In Kerala’s case, the U.S. tariffs and the GST proposals have dealt a double whammy, Mr. Balagopal said. The reciprocal tariffs and penal tariffs announced by the U.S. will adversely impact exports, especially spices and seafood, from the State. The Finance Minister said that the GST rejig was not, in reality, aimed at reducing the tax burden, but a surrender to U.S. President Donald Trump. “Mr. Trump had mocked India as a dead economy. Through the reciprocal tariffs and penal tariffs, Mr. Trump wanted India to reduce its taxes, and create the opportunity for American goods and services to be sold here. Mr. Modi is paving the way for it,” Mr. Balagopal said.