The Hindu Business Line : Modest tax effort in Kerala budget

THE imposition of 10 per cent luxury tax on marriage halls and related services, concessions in agricultural income tax, addition of a slew of items to the entry tax list and reliefs to small traders under value-added tax (VAT) regime are some of the highlights of the State Budget for 2005-06.

The taxation proposals in the Budget, presented in the State Assembly by the Finance Minister, Mr Vakkom Purushothaman, on Friday, mainly focus on streamlining the tax structure in the context of the VAT system being introduced from April 1.

The additional resource mobilisation is limited to a modest Rs 10 crore accruing from the imposition of the luxury tax on marriage halls and related services. The Budget envisages revenue receipts of Rs 16,623.97 crore and revenue expenditure of Rs 20,696.24 crore, leaving a deficit of Rs 4,072.27 crore.

After taking into account various other heads such as capital expenditure, public debt and carry-over deficit from the previous year, the overall deficit for the year has been projected at Rs 997.18 crore.

A notable proposal in the Budget is the restoration of stamp duty and surcharge to the rates prevailing before December 2003. At that time, the Government had amended the Kerala Stamp Act, reducing the stamp duty from 8.5 per cent to four per cent and the surcharge from five per cent to two per cent.

The Finance Minister said that this was on the expectation that the fair value for land would be fixed by the Government through a notification and the levy and surcharge could thereby be rationalised. But, the delay in issuing the notification had resulted in substantial loss for the Government.

The Minister explained that the new luxury duty had been imposed with the objective of discouraging extravagance and avoidable expenditure in respect of marriages, receptions and other similar functions, which landed many families into debt trap. The 10 per cent luxury tax will be levied on the rent received by hotels, clubs, auditoria and other similar places and the payment received for the services provided.

In respect of rent, the tax will be levied on rent in excess of Rs 3,000 per day. However, the halls located within the premises of places of worship will be exempted from the tax.

The rate of tax on house-boats is also proposed to be increased to 10 per cent, which will bring in an additional revenue of Rs 2 crore. Besides, the registration fees and compounded tax for hotels under various categories have been revised.

In the area of agricultural income tax, the Budget proposes to amend the relevant Act to provide that only that part of the income, which is not liable to income tax, will be subject to agricultural income tax. The rates of tax on the agricultural income have also been rationalised under different slabs. The revenue loss on this count is put at Rs 2 crore.

The new items that have been brought under entry tax are scientific &laboratory equipment, electronic goods, machineries, fireworks &coloured matches, glass, motor vehicle spare parts and linoleum and flooring materials. Also, white cement will be included in the category of "cement" in the list.

For small traders, who account for about 60 per cent of all registered dealers in the State, the Budget proposes a differential treatment on the ground that the sale will be to consumers with no claims for input tax credit. Accordingly, such traders need to pay only one per cent tax on annual turnover of Rs 5 lakh to Rs 50 lakh.

The Finance Minister said that in order to ensure that the small traders do not face any operational difficulties under the VAT regime, their registration requirements would be simplified. They will not be required to provide security deposit for new registration. Further, such dealers do not have to produce accounts for verification and they have to file returns only quarterly.

He said there would be explicit provision in the VAT legislation to enjoin that the assessment of tax liability would be mainly through self-assessment. This will do away with departmental assessment, except in cases where irregularities or tax evasion are detected.

Under the new system, the rate of tax on raw materials used for manufacture will come down to four per cent. On the other side, the tax exemption given to industrial units will be discontinued. Even so, for promoting investment and employment generation, the units will be allowed the exemption till its expiry.

In line with the decision at the national level to exempt items of local significance from sales tax, the Budget proposes to include items such as "pulppaya", "thazhappaya", products notified by KVIC, green or soaked coconut fibre, printed forms of court and PSC applications and rice issued from Government depots for sale by authorised ration dealers, under the category.

The rate of tax on tea will be retained at four per cent. Similarly, the rate of tax on rice and wheat will be retained at one per cent.

The Finance Minister said the success of the Budget rests on its ability to cope with unexpected developments. The uncertainty over the introduction of VAT and the award of the 12th Finance Commission and the likely fluctuations in interest rates are all factors to contend with.

Meanwhile, the revised estimates for 2004-05 showed that there would be a slight fall in revenue expenditure. The revenue deficit would come down from the projected Rs 4,707.13 crore to Rs 4,565.31 crore, while the cumulative deposit would be Rs 837.90 crore as against Rs 751.34 crore.

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