Enhance tax collectons at panchayat level PDF Print E-mail
Thursday, 01 February 2018 05:04
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Shobhana edit

By and large, the poor quality of infrastructure facilities, civic amenities or services in many parts of the country is blamed on inadequate resources. The Economic Survey for 2017-18, points out, however, the government bodies seem not be mopping up revenues from taxes to the extent they could. This is particularly true for institutions at the lower levels—rural local governments or panchayats where the data shows the mobilisation of resources, from taxes, could be much higher. For instance, while ULGs (urban local governments) are doing satisfactorily to generate around 45% of total revenues from own sources. However, RLGs (rural local governments) rely overwhelmingly, or to the extent of about 95%, on devolution. Indeed, the per capita own revenue collected by ULGs is about 3% of the urban per capita income while the corresponding number for RLGs is just 0.1%. States such as Uttar Pradesh depend almost entirely on transfers while Karnataka, Kerala and Andhra Pradesh collect some taxes.

As the survey notes, in the face of such serious under-collection, the tier-2 and tier-3 governments can hardly complain about not having enough funds or not receiving enough from the Centre by way of devolution. It is not as though the lower level bodies don’t have the powers to collect the tax; for whatever reason, they’re simply not using those powers. It’s true that local bodies are not allowed to collect all taxes but even within their limited ambit, there is room for enhancing collections.

The panchayats, for instance, are permitted to collect property taxes—which account for the bulk of their revenues— but not land taxes. But what the data reveals is that states collect only a small fraction of what they actually could—a pan-India average of 19% if unreasonably low land values are assumed and about 7% on more realistic land value assessments. In Chandigarh, for instance, there is no land-tax realisation although the records show there is some 923 hectares of agricultural land.

Incidentally, the Centre too fares poorly when it comes to collecting taxes at the local level, estimated at just 30% of the potential. However, India’s ULGs aren’t doing too badly when benchmarked against international norms. Own revenues as a share of total revenues are actually higher than Brazil and Germany while their direct tax share—about 18% of total revenues—is only marginally lower than Brazil. However, the story is very different at the lower levels. At the third tier, India’s RLGs reliance on own resources at about 6% is way below that of 40% for third tier governments in Brazil and Germany. And panchayats raise about 4% of their overall resource envelope in the form of direct taxes compared with about 19% and 26% in Brazil and Germany, respectively.

Already, in India, the share of direct taxes in the total pool of taxes is not large. While this share isn’t too different from that seen in countries at a comparable stage of development, worryingly, the reliance on direct taxes is coming down. The trend, the economic survey points out, could get accentuated if the GST turns out to be a buoyant source of revenues.


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