1.Introduction

Stamp duty and registration fee (SD&RF) was a major source of revenue in Kerala. During the second half of the 2000s, that is 2005-06 to 2009-10, it was next only to Sales tax and VAT contributing more than 12 per cent of the state's own taxes and duties. Its share has steadily fallen since then and it contributes only 6.76 per cent of the own taxes in 2020-21RE trailing to the third place behind taxes on vehicles. A major portion of the receipts from SD&RF in the state is derived from registration of transfer of property effected by way of instruments such as conveyance, gift, settlement, partition etc. As property value is a key subject in any of these registrations, it is well-known that under-valuation of property and evasion of tax was rampant. Fixation of fair value or guidance value is one of the methods adopted by governments to plug this loophole. Kerala too has followed this method during the last twenty-five years. It is important that we take a look at the method adopted to assess whether there is scope for improvement.

2. SD&RF trend

SD&RF receipts over the last 54 years is presented in Figure 1 (in natural log). A careful look at Figure 1 suggests that the period 1967-68 to 2020-21 may be divided into three sub-periods to characterize the changing growth pattern. The three sub-periods are, I: 1967-68 to 1994-95; II: 1995-96 to 2007-08; and III: 2008-09 to 2020-21. Compound Annual Growth Rates (CAGR) of SD&RF for the three sub-periods are 15.91%, 12.39% and 5.18% respectively. It is evident that the growth rates are falling steadily. In the third sub-period the growth has fallen drastically going below the growth rate of Gross State Domestic Product (GSDP) of Kerala in current prices and growth rate of tax revenues leading to the fall of both ratio of SDRF to GSDP as well as SD&RF to State's Own Tax Revenue (SOTR).

Figure 1. Stamp duty & registration fee receipts, Kerala, 1967-68 to 2020-21RE

Source: Government of Kerala, Budget in Brief, various years, Finance Department.

3. Fair value fixation

It was known for long that considerable undervaluation of land is shown in the documents presented for registration to evade stamp duty. It was felt that a corrective need to be introduced and the insertion of Section 28A by Act 14 of 1988 to amend the Kerala Stamp Act, 1959 was the first step in that direction. This insertion was with regard to the fixation of fair value by the District Collector. The milestones in fair value fixation are well described in Table 7.2 of the C&AG's Report - 8, 2014, Chapter 7 which is reproduced below as Table 1. The description in the Table may be used to arrive at periods when a fair value had to be shown in the document and periods when it need not be. The average annual percentage change in SD&RF receipts during these periods are shown in Table 2.

There was no change in the rates of stamp duty for the major registration instruments during 1991 to 2010. So, we can take the period up to 2010 and examine Table 2 without bothering too much about the influence of rate change on SD&RF. It may be seen that whenever a fair value rule was in operation the receipts showed lower growth and the receipts grew at a much higher rate when the rule was not in operation. Obviously, people were taking advantage of the frequent changes in fair value rule. They were waiting for a relaxation to register the instruments. But from 2010 fair value rule had got firmly established and the poor growth in receipts over the ten years since then needs some careful look.

Table 1: Milestones in fixation

Reference