White paper proposes doubling of tax growth rate

By Roy Mathew on Thu, 30/06/2016 - 17:52

Cover of White PaperThiruvananthapuram: The White Paper of State Finances, presented to the Assembly on Thursday, says that Kerala will have to ensure a sustained annual growth rate of 20 to 25 per cent in tax collection.

The State will have to gear up its tax machinery for this purpose. There was no escape from this conclusion given the limited range of fiscal choices available to the State.

As there is no easy way to fiscal consolidation, government will have to exercise strict control over Non Plan Revenue Expenditure minus salaries, interest and pension. Salaries, interest and pension has to be moderated at reasonable and sustainable levels.

“Unfortunately, the State has been living on a financial lie.

It is in this background that the relevance of a White Paper lies.”

It says that Kerala cannot wait for fiscal crisis to be resolved to step up capital expenditure. “To this end, wherever necessary, we shall innovatively adapt legal frame work for existing institutions and wherever needed create special purpose vehicles for implementation of major capital projects in the State on a massive scale.”

White Paper on Finances:

Challenges and Concerns listed:
Steeply declining trend of resource mobilisation.
(Commercial tax collection drops from 24% in 2011 to 10.13% in 2016)
No revenue deficit grant after 2017-18.
Commitment on account of increased devolution to LSGIs.
Arrears payable to employees and pensioners.
Huge outflow due to redemption of public debt.
Meeting the huge CAPEX requirements of State.

Proposes:
Exercise of strict control over Non-Plan expenditure.
Moderation of expenditure on salaries and pension.
Gear up for tax machinery to achive 20-25 per cent growth rates in tax collection.
Special purpose vehicles for launching major capital projects

The State has been persistently running huge negative balance in current revenues in 2013-14 and 2014-15. However, what exacerbated this was that for the last three years, the Annual Plan size has been fixed about 10 to 15 per cent beyond the State’s estimated capacity—all done to announce an artificially bloated plan size each year.

It says that the immediate and short term liabilities of the government was over Rs. 10000 crore while the closing cash balance on March 31 this year was Rs. 1643.99 crore.

The growth of revenue from commercial taxes, which peaked at 24 per cent in 2011, dropped to over ten per cent by 2016. If a simple average is taken, commercial taxes grew by 10.31% between 2001 and 2006, 17.75% between 2006 and 2011, and then declined to 14.26% between 2011 and 2016. This resulted from under performance of tax collection machinery in general between 2011 and 2016. The government issued stays on collection of large amounts of tax and concessions offered to benefit certain groups of tax payers.

Advertisment