Rubber price slump saps tax revenues

THIRUVANANTHAPURAM: The dominant economic logic that fall in rubber prices will not lead to a proportionate drop in the consumption pattern of rubber growers is gradually being dumped. Contrary to all expectations and alarmingly for the state’s economy, it has been found that the spending  power of rubber farmers has fallen steeply.
“Growth in the tax revenue is least in the rubber belt areas like Kottayam, Pathanamthitta and Kollam and Idukki,” a top tax official said. “This can only mean that rubber growers are not consuming the way they used to and it is hitting the state hard. Even in the late 90s when the rubber prices dropped to below '20 from a high of '60, consumption had remained steady,” the official said.
Tax sleuths view automobile sales as a barometer of consumption in an area. “Automobile sales in rubber belts have dropped drastically in the last six months. This could be one major reason why there is no significant growth in motor vehicle tax,” the official said. This was also why, the official said, the government was forced to procure rubber at Rs 5 more than the market rates. “The move is expected to give the much-needed fillip to
consumption,” the official said.
The strategy looks sensible considering that high rubber prices, consequently high consumption, historically had a favourable impact on the state’s tax growth. The years when tax growth touched record levels, in 2010-11 and 2011-12, were also the years when rubber prices touched dizzying heights. Rubber is also the commodity that contributes the fourth highest tax to the state after petrol, IMFL and motor vehicles.
Tax expert Jose Sebastian, however, views with suspicion the latest trend of elasticity of rubber growers’ consumption. “The general theory is that if one is accustomed to a certain pattern of consumption, one will not suffer a reduction even if income goes flat. This is especially true for the state’s rubber sector,” Mr Jose Sebastian said.