The Hindu Business Line : VAT shift: Loss in revenue put at Rs 2,400 cr a year

In a nutshell
Capital expenditure projected at Rs 6,102 crore.
Overall deficit for the fiscal estimated at Rs 4 crore.
Deficit to be financed through net borrowings of Rs 7,453 crore.

Chennai , July 22

Tamil Nadu expects its commercial tax receipts to grow 21.46 per cent this fiscal over last year. It expects to earn Rs 19,319 crore as commercial taxes in the revised Budget estimate for 2006-07. Following the shift to VAT, the overall growth in the State's own revenue is assumed at 12 per cent.

The projection assumes 100 per cent compensation by the Central Government to loss on account of shifting to VAT.

For 2007-08 and 2008-09, the compensation is expected to be 75 per cent and 50 per cent. Central Sales Tax (which has to be phased out) has been assumed from October 2006 at three per cent, for 2007-08 at two per cent and 2008-09 one per cent.

The Finance Secretary, Mr K. Gnanadesikan, said the loss in revenue growth due to shift to VAT is estimated at Rs 2,400 crore a year.

States that shifted over to VAT last year were eligible for 100 per cent compensation and for 75 per cent during the current year and 50 per cent in the next year.

Tamil Nadu is optimistic that it can obtain full compensation for the three months of the current financial year when it shifts to VAT. Between 2003-04 and 2005-06, the State's growth in revenue had averaged around 19 per cent.

The compensation would be based on 19 per cent growth over that of last year.

Financial position

On the overall financial position, the Finance Minister, Mr K. Anbazhagan, said the total revenue receipts for 2006-07 were estimated at Rs 38,731 crore and the revenue expenditure projected at Rs 39,860 crore, leaving a revenue deficit of Rs 1,129 crore— 2.9 per cent of total revenue receipts.

Capital expenditure including loans and advances is projected at Rs 6,102 crore resulting in fiscal deficit of Rs 7,231 crore for the current financial year. The fiscal deficit projected in 2006-07 will be within 3 per cent of the Gross State Domestic Product, which is in line with the targets set under the Tamil Nadu Fiscal Responsibility Act, 2003.

The fiscal deficit will be financed through net borrowings of Rs 7,453 crore.

Taking into account the public account (net) and contingency fund (net), the overall deficit for the financial year 2006-07 is estimated at Rs 4 crore.

This will be covered by economy in expenditure and better tax administration without imposition of any new taxes.

The Government's debt liability as on March 31, 2006 is Rs 56,094 crore for which it earmarks resources of Rs 446 crore a month towards interest.

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