The Hindu Business Line : Sales tax revenue sources in Kerala not fully exploited, says study

GROWTH in Kerala's sales tax revenue over the last 26 years in relation to own tax revenue and total tax revenue has been confined to a narrow 12-per cent to 14- per cent band, implying that the full potential of this vital source of revenue has not been exploited by the State Government.

This anomaly becomes all the more glaring given that sales tax has been variously estimated to account for 70 per cent of the State's own tax revenue, according to Dr R.P. Nair of the Institute of Social Sciences, Thiruvananthapuram.

Quoting statistics, Dr Nair says in a study, titled "Emerging trends in revenue and expenditure of Kerala", that the average annual growth rate during 1974-75 to 1980-81 was 16 per cent; it had declined to 14.5 per cent during the next decade.

The growth rate during 1991-2001 was only around 17 per cent, which, in the prevailing circumstances, was no way better than those of the previous decades. Dr Nair blamed the sluggish growth in sales tax realisations on the increasing gap between tax potential and tax collection.

State excise: Excise constitutes another important source of revenue to the State Government. During the 70s, this formed roughly 12 per cent of the State's own tax revenue. Over years, but with minor fluctuations, its contribution to the State's own tax revenue had remained almost stationary till the end of 2000-01, before recording a fall.

Country liquor produced in the State could meet only a part of the demand, with the balance being met from imports from outside. The annual average growth in excise revenue during 1974-75 to 1980-91 was around 30 per cent.

During the subsequent decade, however, the growth rate had fallen to 15 per cent per annum. This had taken another downward turn to 13 per cent during 1991-2002, indicating yet another instance where the State Government faltered in making best possible use of a potential source of revenue.

Tax on property: Two basic sources coming under this revenue head are land revenue and stamps and registration.

This constituted nearly 12 per cent of the own tax revenue of the State in the early 70s, but had taken a knock to climb down to seven per cent by the end of 2002, although increasing in absolute terms over years. A revision of rates in land revenue was brought into effect in 1998-99 but it did not yield much in results.

Agri-income tax: Kerala is among the few States to tap this source of revenue. However, revenue registered under this head is not only insignificant but has followed a steep downward curve over a period of years.

Contribution from this head to total tax revenue had stood at 2.4 per cent in 1974-75 but slumped several notches to 0.1 per cent by 2000-01. In absolute terms, though, the fall was particularly drastic after 1999-2000.

Motor vehicles tax: As with sales tax and excise, motor vehicles tax constitutes a major pillar holding the State's revenue receipts structure in place. Judged as a percentage of own tax revenue as well as of total revenue, the growth in motor vehicle tax revenue was almost stationary for more than two decades.

When compared to the increase recorded in the number of registered vehicles, the growth recorded has been far from satisfactory, says Dr Nair.

Share of Central taxes: This includes mainly the State's share of income tax and the Union Excise duties, is among the single major contributors to the State's revenues.

Down the years, however, Kerala's share in the total tax revenue had declined indicating that the transfer of resources from the Centre, as per the recommendations of various Finance Commissions, has fallen.

From 28 per cent of the total tax revenue in 1974-75, it had registered a fleeting upward movement to reach up to 31 per cent during the early 80s. But, subsequently, the transfers began taking a nosedive, reaching as low as 21 per cent during 2000-01.