Own tax revenue outpaces GSDP growth in 15 states: PRS Report

Average own-tax revenue of these domains expanded by 12% between 2010-11 and 2018019 (November end); Telangana and Andhra top with 25% and 21% respectively

The own tax revenue of 15 states has bettered the growth of their Gross State Domestic Product (GSDP) between 2010-11 and 2018-19 (as on November end).

On an average, own tax revenue in states has expanded at the rate of 12 per cent in the period under review. A study by Delhi-based non-profit organization PRS Legislative Research shows Andhra Pradesh and Telangana recorded higher growth rates of 21 per cent and 25 per cent respectively. On the contrary, Jammu & Kashmir, Gujarat and Tamil Nadu have witnessed comparatively lower growth rates of their own tax revenue component.

Own tax-GSDP ratio is a measure of a state’s potential to generate taxes from its economy on its own.  A higher ratio indicates a better ability to harvest taxes from the economic activities in the state.  The average own tax-GSDP ratio of states during 2011-12 to 2018-19 (at the end of November) has been 6.6 per cent. The ratio is much lower than the average for the north-eastern states.

During 2010-11 to 2018-19, the growth rate of own tax revenue has been greater than the GSDP growth rate for 15 out of the 27 surveyed states.  The growth rate of own tax revenue vis-à-vis the GSDP growth rate shows how the ability of a state to generate tax revenue on its own changes as its economy grows.  States which have a higher growth rate of own tax revenue than that of GSDP would be able to increase their own tax-GSDP ratio, i.e., their tax generation potential, over the years.  In contrast, the ratio would decrease for states whose own tax revenue is growing at a lesser rate than their GSDP.

Among the states with higher growth rates, own tax revenue of Andhra Pradesh, Jharkhand, Telangana, and Uttarakhand have grown at 1.5-2 times of their GSDP growth rate.  This could improve their own tax-GSDP ratio in the future. 

“On the other hand, the growth rate of own tax revenue is lower at 50-75 per cent of the GSDP growth rate for Madhya Pradesh and Tripura.  This could result in a decline in their own tax-GSDP ratio.  Madhya Pradesh has an above-average ratio own tax-GSDP ratio of 7.2 per cent, whereas that for Tripura has been much lower at 4.2 per cent”, the report noted.

The own tax revenue basket of a state comprises receipts from Goods & Services Tax (GST), state excise, stamps & registration fees and land revenue. 

At present, the revenue generated by levying GST is split equally between the Centre and the destination state, to where the goods and services are supplied by the sellers. As a result of the changes in taxation structure, the share of own tax receipts in revenue is estimated to change for some states.