With Kerala carrying a public debt burden exceeding ₹5 lakh crore and the new United Democratic Front (UDF) government set to present its maiden Budget on 19 June, a veteran public finance expert has outlined an alternative route to bolstering state revenues — one that requires neither fresh taxes nor higher fees for citizens.

The Expert's Core Argument

Dr Biju Jacob, a former Principal Accountant General of Kerala and former Director General in the Comptroller and Auditor General (CAG) office, said Kerala's immediate fiscal problem is not a shortage of revenue sources but the state's failure to fully capture taxes that are already legally owed. Speaking to reporters in Thiruvananthapuram on 12 June, he argued that plugging existing leakages — particularly in commercial taxes and GST-related transactions — could unlock hundreds of crores without burdening taxpayers further.

'In a debt-ridden Kerala searching for fiscal breathing space, the hidden treasury may lie within the tax system itself,' Jacob said.

The Fiscal Backdrop

The UDF government's fiscal white paper, released shortly after it assumed office, painted a stark picture of the state's finances. Chief Minister V.D. Satheesan, who has also taken charge of the Finance portfolio, faces the dual pressure of honouring welfare commitments made during the election campaign while restoring fiscal discipline. Structural reforms — such as raising the pension age or cutting expenditure — are expected to face significant political resistance, while tax hikes risk public backlash ahead of local body elections.

What the CAG Audit Revealed

Jacob pointed to a comprehensive Information System Audit conducted by the CAG in Kerala's Commercial Taxes Department more than a decade ago. That audit, he said, exposed deep structural weaknesses in the tax administration system and identified areas where substantial revenue had escaped assessment. Among the vulnerabilities documented: the splitting of business turnover across multiple registrations, misuse of tax exemptions and deductions, and inadequate scrutiny of returns due to manpower constraints.

Notably, while Kerala's tax regime has since transitioned from sales tax to VAT and then to GST, many of the structural gaps the audit flagged reportedly remain unaddressed. With nearly 15 lakh tax returns filed annually, only a small fraction undergo detailed examination — leaving vast volumes of data unchecked and creating, according to Jacob, a fertile ground for revenue leakage that routinely goes unnoticed.

The Proposed Fix

Jacob's prescription is a fresh, technology-driven Information System Audit of the commercial taxes department, conducted jointly by tax officials, CAG experts, and chartered accountants. He argued that such an exercise could be completed within a few months and potentially identify recoverable revenue running into hundreds of crores. This comes amid broader calls for states to modernise tax administration using data analytics and AI-assisted return scrutiny.

What Happens Next

As Satheesan prepares to unveil his first Budget on 19 June, Jacob's proposal offers a politically palatable option: mobilising resources by collecting taxes already due, rather than imposing new ones. Whether the government incorporates such a recommendation into its fiscal strategy will likely become clear once the Budget is tabled. Analysts will be watching for any allocation toward tax administration reform or a renewed CAG engagement with the commercial taxes department.