Kerala plans to raise Rs 7.5 bn through hiked liquor duty & 10% cess on GST

The Kerala government will seek permission from the GST Council to impose a cess of 10 per cent on the State GST as it looks to rebuild the state ravaged by the devastating floods which could have potentially caused damage worth around Rs 200 billion. 

The state government has already hiked excise duty on liquor by 0.5 per cent to 3.5 per cent, and coupled with the increased SGST, it expects to raise Rs 7.50 billion on an annual basis, Kerala's Finance Minister Thomas Isaac said via his social media account. 

"To those who ask what Kerala is doing other than demanding from Centre for resource mobilisation for Relief: Kerala has increased excise duty on liquor. Kerala will approach GST Council for imposing a cess of 10% on SGT.Both together on annualised basis mobilise ₹750 Cr," Isaac tweeted.

Revenue from liquor has been growing in the last few years and contributed more than Rs 110 billion to the state's kitty last year. The increased liquor cess can fetch Kerala Rs 5 billion in six months. 

As for the SGST, currently, Kerala gets around 7 billion a month, which is an average 7 to 8 per cent. It wants to tweak the rate by two per cent points more.

"Proposed cess of SGST is in the face of this natural disaster and it will be purely on intra-state trade and will have no impact on other states," Isaac said.

These are Kerala's short-term measures for resource mobilisation. 

Earlier, Isaac had told this newspaper that the initial estimate of loss due to the rain and flood was around Rs 200-300 billion.

"We need to rebuild houses, roads and other infrastructures. We are currently working on the package, and are conducting meetings for that," Isaac said.

He said the immediate requirement was to construct houses and compensate farmers for their losses, these alone would cost around Rs 35 billion.

Long-term reconstruction requires a larger amount, something like Rs 200 billion package, which will be funded through multilateral schemes and from agencies like NABARD and NCDC as well as multi-lateral agencies, with cheaper credit.

"We had a meeting with all the erstwhile chief secretaries of Kerala on how to bring in a method and agency for implementation so that the entire programme can be implemented in the next 24 months. We would finalise it in another week's time," Isaac said.

The state is also planning to raise the FRBM (Fiscal Responsibility and Budget Management) borrowing limits at least two years and at least 1.5 per cent increase of the GSDP to be borrowed, which will entirely be spent only on capital expenditures. 

"We will ensure that the revenue deficit goes down, so that the additional borrowing will go entirely into capex," he said.