THIRUVANANTHAPURAM: The state government is trapped in a vicious cycle of its own making. While a general economic slowdown, helped by an inefficient tax administration, had dried up the state’s tax revenues, the state responded by putting a tight leash on development expenditure.
This squeeze on development (less than 35 percent of plan funds have been spent) went on to quell consumption which, in turn, has led to further fall in revenues.
Growth in tax revenue, even after intensive revenue mobilisation efforts, is still under 12 percent, considerably less than K M Mani’s estimate 25 percent.
The general economic gloom has not yet receded as the Mid-Term Economic Review 2014-15 for the country as a whole has revealed.
There is a slight spurt in demand only in the automobile sector, spurred especially by a reduction in fuel prices, which tax officials say has marginally reflected in the motor vehicle tax collection.
“Though motor vehicles is the sector from which we get the third highest share of sales tax, the increase is not so pronounced as to create a dramatic increase in the state’s revenues,” a top Commercial Sales Tax official said.
Collections from IMFL, which has traditionally provided the largest share of sales tax, has shown a stagnation especially after the new liquor policy was announced.
Nonetheless, revenue from petroleum products has shown a slight increase, possibly owing to an increase in motor vehicle demand.
Strangely, there has been a dip in revenues from the construction sector, especially from the sales of cement, iron, paint, electrical goods, sanitary ware and timber.
Jose Sebastian of Gulati Institute of Finance and Taxation said that rampant tax evasion was the order of the day.
“The state does not possess a proper commodity database,” he said. “Even raids are conducted on the basis of hunches,” he said.
According to Mr Sebastian, over dependence on indirect taxes has put the state in a rut. “We don’t have a broad tax base to choose from,” he said.
He wants the share of direct taxes in the state’s revenues to be brought back to pre-globalisation levels.
For instance, in 1971-72 the percentage of revenues from health and education was nearly seven percent of the total but now it has come down to below two percent.
