West Bengal finance minister Amit Mitra may be worried with the near-empty coffers and the burgeoning state expenses. The economist and former secretary-general of the Federation of Indian Chambers of Commerce and Industry and would, however, have to do a balancing act, with the little options he has, while presenting his second budget on March 23.
While working on Trinamool Congress' policy of Maa, Mati Manush, the industry veteran has to refrain from levying any new tax, but may still have to dole out populist schemes.
Experts say the only way the state can raise substantial revenue without increasing consumption is by raising taxes and introducing new ones like octroi and purchase tax on agricultural commodities.
They suggest, octroi alone can translate into more than Rs 300 crore annually. But it is unlikely the government would take such a step as it might lead to cost-push inflation. More, it would be in direct conflict with the ruling party's principal aim of reaching out.
Octroi was abolished in West Bengal in the early 90s to increase trade, but this did not lead to any desirable results.
A substantial number of goods enjoy a lower value added tax (VAT) rate of nil to four per cent in West Bengal. For instance, while chewing tobacco and pan masala, when sold in packaged condition, attract 20 per cent VAT, no tax is payable on bidis.
“Unless one increases the consumption level, the financial position of the state is unlikely to improve in the long term,” said Timir Baran Chatterjee, vice-president (corporate affairs and legal) and company secretary, DIC India Ltd, and chairman, indirect tax committee of the Bengal Chamber of Commerce and Industry.
At present, VAT is one of the highest revenue earning sources of West Bengal, accounting for more than 50 per cent of taxes, followed by excise, sales and professional tax.
Recently, West Bengal has taken up a number of initiatives to increase tax compliance, but the growth in commercial taxes till January was at 20 per cent, way below the 30 per cent target for the current financial year. The state has been shying away from imposing taxes on small service providers like hawkers.
The state has done away with a number of taxes as part of its populist measures. For example, the government did away with water tax from the 127 municipalities, as soon as it came to power.
“There are certain taxes, which, if the government increases, will go against the pro-poor policies of the state. What the state is left to do is to increase taxes on luxury and semi-luxury goods,” said Dipankar Dasgupta, economist and former professor of Indian Statistical Institute.
So far, the Trinamool government has been reluctant even in raising taxes on luxury goods.
For instance in August, when the state presented Finance Bill 2011-12, the government had just raised the levies on alcohol and tobacco-related products. West Bengal had set a revenue deficit target of 3.4 per cent of gross domestic product (GDP) in 2010-11 financial year, whereas the fiscal deficit target was 4.6 per cent of the GDP. Its accumulated debt is Rs 2,06,000 crore. The original borrowing limit was Rs 17,828 crore, but the Centre has already enhanced it by Rs 2,706 crore in view of the dire state of finances. However, the state has gone for an additional Rs 1,000 crore market borrowing to meet its committed expenditure.
In view of low resource mobilisation, the state has demanded a moratorium on annual interest repayment of Rs 22,000 crore to Centre, on its accumulated debt. As much as 85 per cent of the state’s revenue receipts have to be spent on committed expenditure such as salaries, interest payments and subsidies in the state.