Kerala stares at Rs 10,000 crore revenue impact after GST cuts, warns FM Balagopal

Kerala Finance Minister K N Balagopal has warned that the state will lose between Rs 8,000 crore and Rs 10,000 crore annually following the rationalisation of Goods and Services Tax (GST) rates approved on Wednesday.  

Speaking at a media briefing in New Delhi on Thursday, Balagopal underlined that while the state supports the cuts that make goods cheaper, the Centre must step in to protect state revenues. "Kerala supports GST rate cuts that will reduce prices, but compensation should be provided for states. Unfortunately, the issue was not taken seriously during the GST Council meeting," he said.

The biggest hit, he noted, will come from four sectors alone — cement, electronics, automobiles, and insurance — which together are expected to cost the state Rs 2,500 crore annually. "Almost all personal-use items and aspirational goods for the middle class, like ACs and washing machines, will see rate cuts. Premium paid for individual life and health insurance policies too has been exempted from GST," Balagopal added.

The comments came a day after the GST Council, chaired by Union Finance Minister Nirmala Sitharaman, scrapped the 12% and 28% slabs and moved to a dual-rate system of 5% and 18%, with a 40% rate reserved for luxury and sin goods. The new regime will take effect from September 22, the first day of Navratri.

At her briefing, Sitharaman emphasised the consumer benefits. "Every tax on the common man's daily use items has gone through a rigorous review, and in most cases the rates have come down drastically. These reforms have been carried out with a focus on the common man,” she said.

Revenue Secretary Arvind Shrivastava insisted the cuts were "fiscally sustainable for Centre and state," estimating a total revenue impact of Rs 48,000 crore.

Ahead of the tax cuts, West Bengal Chief Minister Mamata Banerjee had flagged the fiscal cost of exempting health insurance from GST. "The waiver of GST on health insurance premiums will cost Bengal Rs 900 crore. But we had to think of the people first. We have advocated for this reform so that more citizens can access health insurance," she had said at an event in Bardhaman.

Banerjee, however, issued a cautionary note for the insurance sector: "We have to ensure that insurance companies do not raise premiums after the GST cut. The purpose is to reduce the burden on families."

Earlier, health insurance premiums attracted 18% GST, with states receiving a 9% share. That revenue stream will now vanish, as the Council has exempted life and health insurance from the GST. 

For Kerala, Balagopal suggested, the trade-off is steep. "The annual revenue loss of Rs 8,000-10,000 crore is a big blow. Compensation is critical if the Centre wants states to stay fully supportive of these reforms," he said.