Tax share rises, but central transfers hit historic low in Kerala

THIRUVANANTHAPURAM: In financial year 2024-25, Kerala will get Rs 24,008.82 crore as its share from union taxes and duties, showed the Union Budget Estimates. This is around 13% more than previous year’s (revised estimate 2023-24) share of Rs 21,261.54 crore. But the state does not have much to cheer about as the percentage of central transfers in total revenue receipts touched a historic low.

Central transfers to a state government comprises the share from union taxes and duties and grants-in-aid (GIA). According to the State Budget Estimates for 2024-25, Kerala expects Rs 11,532.80 as grants-in-aid. The share of central transfers in Kerala’s total revenue receipts for FY25 is 25.63%, the lowest for more than a decade, after 23.60% in 2013-14.

Kerala is positioned 15th among the 28 states in the distribution of net tax proceeds of union taxes and duties. The distribution is done as per the recommendation of the 15th Finance Commission which fixed the share of states at 41% of the net proceeds of sharable central taxes and income tax. Kerala’s inter se state share is 1.925% from the total distribution of Rs 12,47,211.28 crore. At 17.94%, Uttar Pradesh received the highest share (Rs 2,23,737.23 crore). Bihar was second with a 10.06% share (Rs 1,25,444.52 crore).

The low share from union taxes and duties fixed by the 15th FC is among the reasons for the financial crisis faced by the state government. Kerala’s inter-se share declined from 2.5% in the 14th FC to 1.925% in 15th FC. The 15thFC made its recommendations based on the 2011 Census data that affected states like Kerala which achieved better population control.

Now, Kerala wants the next FC to use the 1971 Census data or to incentivise states with low population growth. The 16th FC will recommend the ratio of distribution of tax revenues between the Centre and states and allocation of proceeds among the states for five years beginning April 1, 2026.