Fat tax for healthy Kerala

THIRUVANANTHAPURAM: Trust the finance minister to make a tax imposition as palatable as possible. Dr Thomas Isaac, while dramatically increasing the tax on branded food items, called it a ‘fat tax’, the kind of taxation found in health-conscious Scandinavian countries. All of a sudden, the tax has acquired a moral force like ‘green tax’ or ‘education cess’. Now, junk items purveyed by branded joints like Dominos Pizza or Chicking or Pizza Hut - sandwiches, pizzas, tacos, and burgers - will be taxed at a higher rate of 14.5 per cent, up from 5 per cent earlier. However, your local bakery is free to sell the junk at former prices.

The extent to which these ‘healthy’ measures will revive the state's ailing economy remains to be seen. For a group of people benumbed by years of corruption and perceived maladministration, Dr Isaac reading out his Budget speech from his pulpit in the Assembly might have come across as God. (Isaac, however, would have preferred to be called Sree Narayana Guru’s apostle. He had invoked the Guru four times during his speech.) Dr Isaac’s budget, however, does not sustain the illusion for long.

The finance minister was generous with welfare spending, like a king in a fairy tale; housing for all, insurance for all, toilets for all, free ration for the poor, all pensioners to get nothing less than Rs 1,000 a month and care for migrant labourers. He had the lightness of a street magician, using the most evident ways to resolve his biggest challenge of improving tax growth: tweaking the server in the tax department, e-filing, better scrutiny of tax returns, pulling known evaders into the tax net, simplification of tender forms.

The results are already out. In June, the tax growth has been 19 per cent, the highest in last three years; his target for the fiscal is 22 per cent. Dr Isaac also exhibited a charming common sense. For instance, he announced that KWA will be made profitable in five years without hiking the water tax by even a single paise. How? By merely replacing the old leaky pipes and pumps. Fearless vision was on show. If KSRTC has to come out of the red, he said the only way is to convert to CNG. Dr Isaac was Robin Hood, too. He imposed a 5 per cent tax on coconut oil and said the money mobilised will be used to increase the support price of coconut to Rs 27 from Rs 25.

He also revealed a sensitivity unheard of in finance ministers. Besides announcing a Gender Department, he has earmarked Rs 50 crore to construct public toilets and "fresh-up" centres for women in petrol pumps, bus stands, railway stations and other public spaces. His revenue deficit (1.98 per cent), as a result, has swelled, more than the UDF’s budget (1.51 per cent) that he had altered, but it all seemed for a purpose. However, Dr Isaac soon transformed into a reckless punter. He announced Anti-Recession Package II of Rs 20,000 crore, all of which will be mobilised using a number of special purpose vehicles, the most prominent one being Kerala Infrastructure Investment Fund Board (KIIF-B).

All his ambitious projects - roads, bridges, hi-tech classrooms, industrial parks and land acquisition - will have to be carried out using this money. Will the state then raise more taxes, or introduce something as politically suicidal as tolls, to pay off its debts? Will these payments not solidify into a committed expenditure like salaries, a component Isaac had warned us against? These are questions which only time will answer. And in between the big talk, Dr Isaac also managed to sneak in some inflationary proposals. He has increased the tax on cargo vehicles, and has also re-introduced tax on wheat and wheat products.