Sales tax collection falters

By P. Venugopal

THIRUVANANTHAPURAM, MARCH 3. Lack of buoyancy in revenue mobilisation has been one of the most worrying aspects of the financial management of the State Government during the last three years.

In his Budget speech, the Finance Minister, Mr. T. Sivadasa Menon, had claimed that the State Domestic Product (SDP) in 1999- 2000 had grown by 16.81 per cent over that of the previous year. For this, it should be noted, he had based his calculations on the basis of current prices which did not take into account the effect of inflation.

A growth in the SDP should, under normal circumstances, mean a proportionate growth in revenue for the State Government through taxes and levies in the sectors where value addition had taken place to account for the SDP growth. Usually, the tendency of an economy where taxation effort is as high as in Kerala is to come up with a revenue growth rate higher than the SDP growth rate indicated for the same period.

But the total revenue raised by the Government went up only by slightly less than 10 per cent from Rs. 5,207.22 crores to Rs. 5,724.22 crores between 1998-99 and 1999-2000. Ideally, the rate of revenue growth should have been doubled.

In fact, the situation in 1998-99 was still worse, with the revenue growing by only 3 per cent over the amount mobilised in 1997-98. The growth between these two years was from Rs. 5,053.16 crores to just Rs. 5,207.22 crores.

Curiously, while gloating over the rather creditable achievement in the matter of SDP growth, the Finance Minister, in the same breath, defends the slow growth in revenue collection by attributing it to the ``recessionary trends'' which have been prevailing in the country. The baffling question is, how can recessionary tendencies and a high SDP growth rate co-exist in an economy?

Out of a total amount of Rs. 5,193.50 crores mobilised through taxes in 1999-2000, sales tax accounted for a major chunk of the Rs. 3,853.54 crores (74 per cent). It is not difficult to see that buoyancy in sales tax revenue is the most important factor which decides the overall buoyancy in tax revenue as well as total revenue receipts of the State Government. The share of sales tax in the total revenue raised by the Government (which includes both tax and non-tax revenue) comes to 67 per cent in 1999-2000.

The figures shown in the report of the Comptroller and Auditor General of India for the year indicate that it is this area which has badly let down the State Government.

The Government's argument is that, with the prices of all agricultural commodities plummeting (due to the policy of globalisation and liberalisation being pursued by the Centre), the rural economy of the State had suffered badly, bringing down the purchasing capacity of the people and thereby the tax revenue from sales.

However, it appears that there is another more serious reason for the poor sales tax collections, which neither the Government, nor the Opposition parties are willing to acknowledge publicly for fear of becoming unpopular with a powerful section in the State. The last three or four years have witnessed a new phenomenon of organised resistance by traders and merchants to the taxation efforts of the State Government.

The morale of the Sales Tax Department is at a low ebb, with the Government failing to back it fully in tackling this resistance. The CPI(M) has been trying to counter the threat of this organised resistance by floating a rival union in the trading circles. But the tactic is yet to succeed.

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