The Hindu : Poor tax collection caused crisis, says study

Online edition of India's National Newspaper
Tuesday, Dec 24, 2002

Southern States

Southern States - Kerala

Poor tax collection caused crisis, says study

By Our Special Correspondent

THIRUVANANTHAPURAM DEC. 23. The financial crisis in the State was largely the result of State-aided undermining of resource mobilisation, says a study by Ravi Raman, Associate Fellow of Centre for Development Studies here.

Dr. Ravi Raman notes that the fiscal imbalance, described as crisis by the Government, is not economy induced, but rather the State aided/generated/patronised. Powerful interest groups were allowed to go on without paying their dues to the Government.

Contrary to the trend in the early 1980s, the Kerala economy registered a revival from the late '80s, and stayed above the all-India average until the mid-'90s. Though it could not maintain this tempo, the economy has still been performing well. This was despite the aberrations created in the cash crop sectors owing to trade agreements such as the WTO and the India-Sri Lanka free trade pact, the declining trend in the devolution of revenues to the State, and the successful implementation of the statutes of the revised pay commission. So, poor resource mobilisation was not the result of slump in the economy.

The increase in the revenue deficit of States, he notes, was matched by reduction in transfers from Central Government. The Central assistance and current transfers to Kerala as a proportion of Net State Domestic Product (NSDP) declined from 10.43 and 6.62 in 1991-92 to 5.91 and 4.09 respectively in 1999-2000. Had the State been able to bargain with the Centre to get the same level of transfers, its deficit position would not have deteriorated.

To add to this, powerful social structures in the State have remained more or less non-contributory to the State exchequer. They included groups of large traders, owners of luxury hotels, big planters, gold merchants, liquor barons, forest contractors and others. Huge amounts of accumulated funds remain frozen, leading to what could be called a State-aided/patronised liquidity crisis. Besides, there is a continuous derailment of resource mobilisation in the State, which is largely State- patronised.

Increasing amounts of revenue is locked up in various revenue generating sectors of the economy owing to under-assessment of tax, incorrect computation of agricultural income tax, exclusion of income from assessment including those of luxury hotels and bars and non-realisation of proper value in forest produce and so on. The locked up funds worked out is more than Rs. 1,000 crores. This is in addition to the huge arrears of tax which comes about Rs. 1,700 crores.

The non-implementation of revised lease rents in plantations leads to large revenue losses. Under both Quit Rent and Lease Rent, the actual rent is abysmally small and there is absolutely no uniformity in rent collection across the planting companies. For instance, while the Tata Tea, the largest integrated plantation in the world, with its 50,000 acres, pays only Rs. 50 an acre; there are estates paying only Rs. 25 an acre. The A.V. Thomas & Company needs to pay only Rs. 5.30 an acre.

The total locked up funds in various State departments including the cumulative arrears works out to around Rs. 3,600 crores, an amount almost equivalent to the ADB loan. Unlocking the locked up funds alone would make Kerala a surplus State.

Printer friendly page
Send this article to Friends by E-Mail

Southern States

Stories in this Section

UDF seeks support for investors meet

Gas leak in sugar mill, 3 killed

Heavy rush at Sabarimala

Mohammed Ali proceeds against IMA leaders

Sivagiri pilgrimage from Dec. 30

CM for surveillance over disproportionate wealth

Coop. Sugars failed farmers, workers

Poor tax collection caused crisis, says study

Ratheesh dead

NSS mending fences with Cong.