Notice: GIFT website is under migration process for new website and all the process related are affected during this time. Please accept our sincere apologies for the inconviniences caused.
Authors: Mary George | Published on: 15-Sep-2022
In Kerala, even though rate of growth of Gross State Domestic Product is quite high during normal years, it is not accompanied by commensurate growth in revenue realization.
The present revenue structure of the State places disproportionately high burden on the poor and the marginalized and the proceeds are used irrationally to feed the government, aided sector staff , corrupt power mongers around the politicians etc.
When we examine revenue receipts and revenue expenditure as percentage of the GSDP, the basic reason for the endemic fiscal crisis of the State is well exposed.
Carbon taxation as well as environmental taxation are considered as effective instruments for influencing both the behavior of consumers and producers.
Mobilizing resources through reforms in non-tax sources of revenue of the State can serve the twin purposes of having a rational non-tax revenue structure and generating more resources for faster economic growth and better service delivery.
The Third Public Expenditure Review Committee in its Second Report, attempted a comparative analysis of the Kerala state's own non-tax revenue with that of the Non-Tax revenue of All States of India.
Kerala has higher non-tax revenue potential due to reasons like; 1). Highly developed health and education services, 2). High remittances and hence extravagant investment in the construction sector, especially housing, 3). Large forest cover and forest resources, 4). Government owned land that are rented out at paltry sums to public sector enterprises need a drastic hike.
Tax buoyancy in Kerala has always been low due to the defective tax structure, tax avoidance, evasion, poor compliance, corrupt tax administration etc.
At any level of government, revenue mobilization is the sine-quanon of growth and development. In Kerala, even though rate of growth of Gross State Domestic Product is quite high during normal years, it is not accompanied by commensurate growth in revenue realization. Perhaps from the British regime onwards Travancore and Cochin registered poor revenue mobilization compared to other areas of India. Thomas (2021) observed that, "In most states, land revenue is the mainstay of the state fisc and is responsible for about a third of the total revenue (Hyderabad 36%, Baroda 36%, and Indore 49%). The corresponding percentage in British provinces are Madras 30%, Bombay 27%, and Bengal 25%. Land revenue plays a smaller part in the maritime states (Travancore 13.7%, Cochin 12%)". (Thomas E.M, 2021)1. From the above observation, we get some glimpses of the Past performance of major part of Kerala with regard to land revenue mobilization. Land scarce Kerala has high land revenue potential. However the lion's share of it has been untapped for more than a century. Chelliah (1996) 2 pointed out that the revenues of Central and State governments have increased over the period, but rate of growth of revenue expenditure is faster due to inefficiency, extravaganza, corruption and many other reasons (p.115). Undemocratic, populist election winning benefit transfers may be added to these "other reasons". Revenue realization is adversely affected in Kerala also due to low tax buoyancy caused by defective tax structure, tax avoidance, evasion, poor compliance, inefficient and corrupt tax administration etc. It is to boost up tax buoyancy that Goods and Services Tax (GST) was introduced in India from July 1st, 2017. However the Tax Expert Scheme (2017) concluded that "India is the first country to implement GST with considerably less clarity regarding the intricacies in its proposed structure, transitional arrangements, administration and procedures, and framework to contain inflammatory ramifications"(p.168). This observation throws light into the reasons why GST revenue falls short of expectations or potential in the GST era.
Revenue profile of the state
National policies like demonetization (Nov. 2016), introduction of Goods and Services Tax (July 1, 2017), the Ockhi cyclone (2017), devastating flood of 2018, the spread of Nipah Virus, outbreak of Corona virus in 2020 and its drastic spread in 2021, etc. have all adversely affected the normal functioning of the state economy. When revenue requirements increased, revenue receipts declined to levels previously unheard of in the past. The implementation of GST imposed restrictions on states in raising state level taxes. Delay in getting GST compensation, reduction in Central assistance schemes after the 14th Finance Commission Award have added fuel to fire. Let us examine the revenue realization of Kerala during selected years.
When we examine Row-17 of table 1 which tells upon the rate of growth of GSDP, discernible slowdown in growth is visible from 2019-20 onwards on account of reasons stated elsewhere. Row-2, gives account of the rate of growth of revenue receipts. Since the growth figures of GSDP are low and fluctuating, rate of growth of revenue receipts does not give an accurate picture. Sometimes base effect of low and negative GSDP growth gives an exaggerated picture of revenue growth. At the same time State's own tax revenue (row 6) growth rate gives a more or less accurate picture. It showed a decline from 10.15 per cent to 8.80 per cent in 2018-19. This could be due to the impact of demonetization and the hasty implementation of GST. The decline has been much sharp during the year 2019-20 (from 8.80 per cent to -0.063 per cent) and this could be the after effect of devastiating flood. The decline continued in 2020-21 (-5.29 per cent), an impact of the spread of Corona virus. Devolution from the Center unlike what the state claims, is on a higher range from 2020-21, as the table 1 depicts.
Table 1: Revenue Indicators and its Rate of Growth: Kerala (Selected Years in Rs. Crores) |
||||||||||
|
Year
Item |
2011-12 |
2016-17 |
2017-18 |
2018-19 |
2019-20 |
2020-21 |
2021-22
BE |
2021-22
RE |
2022-23
BE |
1 |
Revenue Receipts |
38010 |
75612 |
83020 |
92854 |
90224 |
97616.8 |
130981 |
117888 |
134097.8 |
2 |
Revenue Receipts as % of GSDP |
10.44 |
12.27 |
11.83 |
11.88 |
10.56 |
12.2 |
14.95 |
13.7 |
13.41 |
3 |
Rate of Growth of Revenue Receipts |
22.65 |
9.53 |
9.79 |
11.85 |
-2.8 |
8.19 |
34.17 |
9.99 |
13.75 |
4 |
States’ Tax Revenue |
25719 |
42176 |
46459 |
11783 |
50323 |
47660.84 |
71833.28 |
58867.89 |
74097.8 |
5 |
STR as % of GSDP |
7.06 |
6.84 |
6.76 |
6.4 |
6.1 |
5.96 |
8.19 |
6.52 |
7.41 |
6 |
STR Growth Rate |
18.4 |
8.16 |
10.15 |
-74.64 |
327.08 |
-5.29 |
50.7 |
-0.18 |
25.87 |
7 |
States’ Non-Tax Revenue |
2592 |
9700 |
11199 |
11783 |
12265 |
7327 |
14335.79 |
10038 |
11769.6 |
8 |
STNR as % of GSDP |
0.71 |
1.57 |
1.63 |
1.5 |
1.48 |
0.92 |
1.64 |
1.11 |
1.17 |
9 |
Rate of growth of STNR |
34.3 |
15.13 |
15.45 |
5.2 |
4.09 |
-40.3 |
95.65 |
-29.9 |
17.25 |
10 |
Central Transfers |
9700 |
23735 |
25360 |
30427 |
27636.31 |
42628.68 |
44819.99 |
48982.22 |
48230.45 |
11 |
C.T as %of GSDP |
3.37 |
4.34 |
3.69 |
3.89 |
3.35 |
5.33 |
5.11 |
5.43 |
4.82 |
12 |
Rate of Growth of C.T |
46.25 |
9.82 |
6.84 |
19.98 |
-9.17 |
54.24 |
5.14 |
9.28 |
-1.53 |
13 |
Revenue Expenditure |
46045 |
91096 |
99948 |
110316.4 |
104719.9 |
123446.3 |
147891.18 |
149803.21 |
E.M. Thomas (2021). Collected Scientific Papers of the Pioneering Economist and Planner P.J. Thomas; (ed.) Academic Foundation, New Delhi; 2021, p.203. |