In a significant blow to Kerala's fiscal health, the state is bracing for an annual revenue loss of Rs 8,000 crore to Rs 10,000 crore due to the recent Goods and Services Tax (GST) rate rationalization, according to state Finance Minister K N Balagopal. The announcement, made on Thursday, September 4, 2025, in New Delhi, follows the GST Council's decision to streamline the tax structure, a move that has sparked concerns about its impact on state finances.

The GST Council, in its meeting on Wednesday, approved a simplified two-rate structure of 5% and 18%, replacing the existing four slabs of 5%, 12%, 18%, and 28%. While Balagopal expressed Kerala's support for the rate cuts, which are expected to lower prices for consumers, he emphasized the need for the central government to ensure these benefits reach the common people. However, he voiced disappointment over the lack of serious discussion on compensating states for the resultant revenue shortfall during the GST Council meeting.

Balagopal highlighted that Kerala’s estimated revenue loss includes Rs 2,500 crore annually from four key sectors: cement, electronics, auto, and insurance. The rate cuts will reduce taxes on a wide range of personal-use and aspirational goods, such as air conditioners and washing machines, which are popular among the middle class. Additionally, premiums for individual life and health insurance policies, including family floater plans, have been exempted from GST, further impacting state revenues.

Also Read: Health Minister Announces Kerala's Latest Medical Feat

Union Finance Minister Nirmala Sitharaman, addressing the media on Wednesday, stated that all decisions at the GST Council were unanimous, with no dissent from any state. Revenue Secretary Arvind Shrivastava added that the financial impact of the rate rationalization, estimated at Rs 48,000 crore nationwide, is "fiscally sustainable" for both the Centre and states. However, Balagopal’s concerns highlight the challenges faced by states like Kerala, which heavily rely on GST revenue to fund public services and development projects.

As Kerala grapples with this projected financial hit, questions arise about how the state will bridge the revenue gap. The lack of a clear compensation mechanism has intensified worries, with potential implications for welfare programs and infrastructure development. The situation underscores the delicate balance between tax relief for consumers and maintaining fiscal stability for states, setting the stage for further discussions between the Centre and state governments.

Also Read: Kerala to Celebrate Onam with Drone Shows and Cultural Events