Vat about Kerala’s hype of doubling tax revenues?
The modest 6% growth in post Vat tax revenue in Q1 has thrown Kerala into a necessary-but-not sufficient tension. The tax revenue growth could well make the state forfeit its claim for compensation on Vat losses, while the pace of growth, so far, is not sufficient to justify the radical shake-up in the system.
In fact, early estimates could be embarrassing for the government. Based on a study of 85 revenue-earning items, the state government had estimated value-addition to the tune of 30-100% during the first and last point sales. This is a far cry from what the first tidings show. Instead of the Rs 73 crore gain registered in Q1, a path of revenue fall would have led the state to a compensation of Rs 850 crore from the Centre. And this where the Vat shoe pinches.
It is hard to believe the 6% growth was possible purely because of Vat, says KN Harilal, faculty, Centre for Development Studies. One, the sales tax collection process in Kerala had been in a slump recently and the lower base would make even the slightest growth show a significant impact. Two, the state economy is undergoing a visible boom. Instead of being a performance indicator of the Vat benefit, the revenue growth could well be an underestimated index of the rise in trade volumes.
More: financialexpress.com