The State has demanded, in a supplementary memorandum to the 16th Finance Commission, that it be given supplementary grants under Article 275 of the Constitution. It has also urged the Commission to “reassess” State finances and resource needs for the next five years while finalizing its recommendations on vertical devolution and revenue deficit grants. Kerala’s grouse is that the rate revision would further increase the gap between own and devolved revenues and the expenditure obligations of States, including Kerala. This being the grim reality, the memorandum said, the State needs to be compensated through a provision of grants.

In his statement, State Finance Minister K. N. Balagopal said the estimated revenue loss to Kerala because of the GST rate rationalization would be between Rs 8,000 crore and Rs 10,000 crore. As the compensation levied on items falling under the 28 per cent rate has stopped, an appropriate constitutional way to prevent the worsening of VFI in the next five years is to recommend further grants under Article 275 of the Constitution.

According to the memorandum, the revenue loss to the State on account of the US tariff alone is estimated to be Rs 2,400 crore during 2025-26. It may be mentioned that the State had submitted an initial memorandum when the Finance Commission headed by Arvind Panagariya visited the State in December 2024. What prompted the State to submit an additional memorandum conveying its concerns was the implications of the “Trump Tariffs” and the GST revamp.

Kerala’s case is that the GST on lottery should be reduced because over two lakh people, including the differently abled and the elderly, are heavily dependent on lottery sales for their livelihood. This makes out a strong case for not seeing lottery as a luxury item. The tax hike would also adversely affect the Karunyha Benevolent Fund powered by the Kerala Lottery, which offers medical assistance for poorer sections of society.

As per the Budget estimates of the Kerala Government, the gross revenue from lottery sales in the State is expected to increase to Rs 14, 121.14 crore in 2025-26 from Rs 11, 892.88 crore in 2022-23. However, the Government’s profits would be much lower as the prize money, commissions and related expenses of the State Lotteries Department are met from this revenue.

The State Finance Minister also stressed the need to make sure that the people are benefited by the GST rate revision. Addressing newspersons, Balagopal said while the State is not against the reduction in people’s tax burden, past experience has shown that the benefits have gone mostly to businesses and companies.

The Minister claimed that Kerala should have received Rs 52,000 crore in taxes last year if the 14 per cent annual hike in tax revenues were ensured since 2017. Instead, the receipts had stood just at Rs 32,000 crore. Under the Value-added tax, sales tax regimes, Kerala’s receipts would have been Rs 51,000 crore last year. He also rebutted the claim that there would be a decline in the revenues of both the Centre and the States. In reality, the States stand to lose more. While the Centre’s GST collection accounts for about 28 per cent of its own Tax revenue, the State’s dependence on GST is much higher. Unless the problem is solved, States like Kerala would find it extremely difficult to pursue welfare measures and infrastructure development if their revenues are not protected. (IPA Service)