Limited options before Mani

Thiruvananthapuram: Finance Minister K.M. Mani has been trapped in a classic Catch-22 situation. He is desperate to augment revenues through a clutch of new taxes but a high rate of inflation means that it would be politically suicidal for him to go ahead with his plans.

Result: None of the new tax measures that were to be in place from October last are  yet to be imposed and, now with elections round the corner, Mani will have no choice but to abandon his proposals even during the 2014-15 fiscal.

“Mani’s third budget this tenure will essentially be a pre-election budget. This means he should be seen as generous to keep a  frustrated public in good humour and, therefore, cannot afford to be bold,” said economist Dr John Sebastian.

When revenues fell short by a wide margin during the middle of the 2013-14 fiscal, Mani had come up with a three-pronged strategy to shore up income: rationalization of the tax structure/identification of fresh tax sources; intensive revenue recovery drive; and prevention of tax evasion.

With the fiscal nearing an end, the first part (clamping new taxes) has been put on the backburner and the other two are being attempted with discouraging results. “We found that the new tax proposals will further fuel the upward spiral of prices,” said Shyam Jagannathan,  Commercial Sales Tax Commissioner.

A five percent VAT on used cars and a two percent ‘essential necessity cess’ on cars costing above Rs 20 lakh, for instance, were considered retrograde at a time when the automobile sector is struggling.

As for revenue recovery, steps have not been initiated to vacate the tax-related stay orders passed by courts. Even worse, evasion continues unchecked; consistent fall in excise and registration revenues is cited as proof.

The growth in sales tax revenue, which constitutes over 70 percent of the state’s revenue, hovers around 13 percent. Mani had projected a 25 percent growth. “It is extremely difficult to achieve the budgeted figure,” the commissioner said.