Kerala Needs New Revenue Strategies After GST Reforms: Experts

Kerala Needs New Revenue Strategies After GST Reforms: Experts

The article reports that financial experts and economists have advised the Kerala government that it urgently needs to formulate new, innovative revenue generation strategies to cope with the substantial financial hit resulting from the recent Goods and Services Tax (GST) rate rationalization.

The Fiscal Challenge

• Anticipated Revenue Loss: The recent GST rate cuts (GST 2.0) are projected to cause an annual revenue loss for Kerala estimated between ₹8,000 crore and ₹10,000 crore. This fiscal deficit is a direct consequence of the lower tax rates on various goods, which reduces the revenue collected per transaction.
• End of Compensation: The state’s financial vulnerability is exacerbated by the cessation of the Central Government’s GST compensation cess, which previously buffered states against such revenue shortfalls.

Proposed Strategies for Kerala

Experts suggested that Kerala must look beyond traditional tax revenue and focus on non-GST measures, likely including:

• Non-Tax Revenue Sources: Maximizing collections from non-tax revenue streams, such as user charges, fees for government services, and returns from state-owned enterprises.
• Improved Tax Compliance and Audits: Enhancing the efficiency of its State GST wing through rigorous data analytics, better audit mechanisms, and increased enforcement to boost compliance and plug existing leakage without relying on higher tax rates.
• Fiscal Prudence: Exercising stringent control over non-essential expenditure and prioritizing spending toward capital formation and growth-oriented projects.

The consensus is that Kerala must adapt its fiscal strategy to survive the post-GST compensation era and the impact of national tax simplification.