Kerala State Finance Minister K N Balagopal has presented the State Budget for the year 2025-2026 in the Legislative assembly today.
Here are the Key Highlights related to taxation outlined and proposed in the budget by the Finance Minister: —
“What was the reason for the fiscal constraints faced by the State? Central negligence is the singular answer to this. This Central negligence did not start all of a sudden during the tenure of this Government. This decline in State’s share of taxes including that of Kerala out of total taxes collected by the Centre began around a quarter of a century ago”, finance minister K N Balagopal stated in the Budget Speech, shifting the blame to centre.
“Kerala’s share which was 3.88% during the tenure of the tenth finance commission has been gradually decreasing across subsequent finance commissions and dipped to a historical low of 1.92% during the tenure of the fifteenth finance commission.
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Kerala’s share has also been declining in terms of grants allocated to local governments by the Central finance commission. It is widely acknowledged that in terms of decentralisation, the State stands first. However, this allocation has also been curtailed.
In Kerala, the share of local self-governments in divisible pool was 4.54 % during the tenure of the 12th finance commission. This declined to 2.68 % during the fifteenth finance commission. Even the Central Finance Commission was convinced that the reduction they had effected to Kerala’s share of Central taxes was very drastic. That is why Kerala was sanctioned revenue deficit grant for the first few years as an interim relief. This too gradually disappeared by the time the second Pinarayi Government came to power.
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If this is the case of share of Central taxes, what about the State’s own tax revenue? With the introduction of GST, we have almost lost our sovereign power to fix the rates on our own and collect taxes. It was expected that GST would bring about a boom in tax revenue. But, this did not happen.
GST compensation was actually granted to compensate for the shortfall in tax collection. This shortfall persists even now; but GST compensation does not exist anymore”, he added.
The huge achievement in augmenting own tax revenue and non-tax revenue is the reason behind the positive change in the fiscal status of the State. This will be evident upon comparison of the previous periods from 2011-12 to 2015-16 and 2016-17 to 2020-21 with that of the period from 2021-22 to 2024-25 during the tenure of this Government.
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“The growth in SOTR has increased to 15.8% during the tenure of this Government (from 2021-22 to 2024-25). Same is the case if own tax revenue and non-tax revenue are taken together.
However, the growth of tax and non-tax revenue increased to 17.4% during the tenure of this Government. In this context, I sincerely appreciate the tax payers and the officials.
Despite major setbacks in terms of allocation of grants and tax share from the Union Government, indicators like revenue deficit, fiscal deficit and debt burden have been significantly reduced during the tenure of this Government. The revenue deficit which was 2.25% during 2021-22 has declined to 1.58% during 2023-24. The fiscal deficit has declined from 4.04% to 2.9% during the same period. The debt to GSDP ratio which was 35.92 % in 2021-22 declined to 34.2% in 2023-24.
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We are sustaining now by augmenting own tax revenue, avoiding unnecessary expenses and prioritizing other expenses. We will be able to augment State’s own tax revenue which was Rs. 47,660 Crores in 2020-21 to Rs. 81,000 Crores by the end of the financial year 2024-25. This is an increase of 70% in four years. The total own revenue (tax + non-tax) of
Kerala is increasing from Rs. 54,988 Crores to Rs. 1,03,240 Crores”, he added, shedding light on the financial situation of the state.
“Sir, Total outlay of ₹23.90 crore is earmarked for various activities of State GST Department. Out of this, ₹8.10 crore is for infrastructure modernisation activities, ₹4 crore for awareness programmes to augment tax revenue, ₹3 crore for setting up of GST complexes and ₹8.80 crore for purchase of vehicles”, he said, in the budget speech.
To encourage tourism sector in the state and to increase the comfort of passengers, the Government has decided to reduce quarterly road tax on Push Back seat vehicles. Further, the present system of levying different tax rates for push back seats and ordinary seats has been removed as Vahan software does not provide for the same. This is to make it simple for tax payers to pay the taxes.
Henceforth, quarterly tax on Contract Carriages registered within the State with seat capacity of 6 to 12 seats will be commonly levied at Rs 350/- per quarter per seat instead of the existing differential rates of Rs. 280/- for Ordinary seat, Rs.450 per Pushback seat and 900/- per sleeper seat.
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Quarterly tax on Contract carriages with seat capacity of 13 to 20 seats will change from the existing rates of 480/- per ordinary seat, 680/- per pushback seat and 1350/- for sleeper seat to a common rate of Rs. 600/-.
Quarterly tax on Contract carriages with seat capacity of 20 and above will change from the existing rates of 680/- per ordinary seat, 900/- per pushback seat and 1800/- per sleeper seat to a common rate of 900/- per seat.
Quarterly tax on heavy passenger sleeper berth buses (contract carriages) at present is Rs.1800/ which will be reduced to Rs.1500/- per sleeper berth per quarter.
The total revenue from Contract Carriage is Rs.292 Cr per annum at present. With the simplification of tax, State will earn Rs. 15 Cr. more.
Since in Vahan Software, the contract carriages are not differentiated according to their types of seats, there exist a practical difficulty in fixing the tax rate of vehicles from neighbouring states entering by way of special permit vide section 88(8). Contract Carriages registered in other states are charged per seat tax in Kerala based on the type of seat, that is Push back seats and Ordinary seats. It is hereby decided to simplify the tax structure to align with Vahan software.
At present the tax per seat per quarter for a contract carriage of another state is Rs 2250 for ordinary seat and Rs 3000 for pushback seat. This will be unified as Rs 2500/- for any kind of seat. The quarterly tax for sleeper berth Contract Carriages of another state is Rs.4000 that will remain the same.
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At present the total revenue from Contract Carriage of other states is Rs10 Cr per annum. With this rationalisation of tax, State will get additional revenue of Rs 1 Cr. This rationalization will also prevent the tax evasion now happening in online payments.
To encourage public transport is the basic responsibility of a democratic Government. Hence, in order to promote more public transport buses on the road, Government has decided to reduce the quarterly road tax by 10%.The total revenue from Stage Carriage is Rs.90 Cr per annum at present. With this reduction of tax, State will lose Rs 9 Cr.
To reduce environmental pollution, Central and State Government have been taking sincere steps. Government vehicles over 15 years cannot run on the roads and the State Government has announced a scrapping policy.
However, Private vehicles have no such restriction. Hence, in order to discourage continuation of old two wheelers, private three wheelers and private motor cars beyond 15 years, the Government has decided to increase the road tax of these vehicles by 50%. The total revenue from private vehicles is Rs. 110 Cr per annum at present. With this increase of tax, State will gain Rs 55 Cr.
Life Time Road Tax for Electric Vehicles, now levied at 5% at present, will be rationalized based on the cost of the electric vehicle. The lifetime tax of private electric four wheelers is herewith re-fixed in relation to the cost of the electric vehicle. For electric vehicles, cost above 15 lakhs, the tax rate will be 8% of the vehicle cost.
For 20 lakhs and above, it will be 10% of the vehicle cost. The Government would like to tax Electric cars with Battery Renting facility at 10% irrespective of the cost of the Electric vehicle. Through this hike in tax, additional revenue of Rs.30 crore is expected.
Amnesty 2024 had given a new impetus to the small traders and the business community of Kerala in general By removing the burden of nearly twenty thousand small arrears below Rs. 50,000 and by recovering more money than the previous amnesty.
However, there has been a demand from the business community that the amnesty rate in the highest slab of Amnesty 2024 should be made more attractive.
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Therefore, a new amnesty scheme called General Amnesty 2025 is being provided for three months on the same model as last year’s scheme. This time, the amount to be paid for arrears with litigation in the highest slab has been changed from 70 percent to 50 percent and for arrears without litigation from 80 percent to 60 percent.
An amnesty was announced in the 2019 budget for bar hotels to settle their dues from 2005-06 to 2017-18. There was a similar amnesty in the 2020 budget as well. In the 2021 amnesty, which was introduced in continuation to previous years, due to Covid and related issues, availing the scheme was difficult.
Therefore, as a continuation of the concessions given in the previous amnesty schemes to settle all the dues of bar hotels up to 2020-21, which includes the Covid period, an additional time of three months is given to pay the full tax arrears and fifty percent of the interest so as to waive the remaining interest and penalty if such payment is made.
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In 2019, a one per cent flood cess was imposed on GST-applicable supplies to raise additional resources required by the state due to natural disasters. However, the GST Council itself has waived penalty and interest for GST notices up to the period 2019-20. Under the circumstances, if anyone has any flood cess left to paid for the period up to July 2021, a Flood Cess Amnesty 2025 is being announced to clear the dues without penalty and interest.
Turnover tax of distilleries has been waived from December 2022. However, since the turnover tax for the period from June 2022 to December 2022 has not been waived, its arrears remain. To settle these, the Distillery Arrears Settlement Scheme 2025 is being announced. Under this scheme, if the turnover tax arrears for this period are paid in full, fines and interest will be waived.
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As part of strengthening the system to prevent tax evasion of goods under the Kerala General Sales Tax Act, a provision will be included in the Kerala General Sales Tax Act to seize and confiscate such goods and vehicles used for the movement of goods, if such movement is carried out with the intention of evading tax.
The amendments to the Kerala State Goods and Services Tax Act, 2017, will be made corresponding to the amendments incorporated in the Central Goods and Services Tax Act, 2017, as per the Union Finance Bill, 2025, which have been made on the recommendation of the GST Council.
The value of land and its income generating potential have increased manifold in the State in recent years owing to overall development. The basic tax now levied on land is quite nominal. Basic tax rates in all the existing slabs will be increased by 50 % to improve revenue to Government from land. Accordingly, the rate in the lowest slab will be increased from Rs 5 per are per annum to Rs 7.5 per are per annum and that in 238 the highest slab will be increased from Rs 30 per are per annum to Rs 45 per are per annum.
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