Following a sharp fall in the State’s share in Central pool of taxes in 2019-20 and reduction in allocation by the 15th Finance Commission in 2020-21, a committee headed by State Chief Secretary T.M. Vijay Bhaskar suggested to the government to demand increase in rate of cess or increase in Goods and Service Tax (GST) rates to meet the shortfall in GST collections in the State.
It suggested to the Finance Department to take up this issue in the GST Council. Cess is different from taxes as it is charged over and above the existing taxes. The two large cesses on taxes that the State imposes are Infrastructure Cess and State Urban Transport Cess.
Infrastructure cess is 15% on excise license fee, 10% each on Motor Vehicle Tax and stamps duty on certain documents for augmenting Bangalore Metro Rail Corporation Ltd., Infrastructure Initiative Fund, and the Chief Minister’s Rural Road Fund.
There is 1% cess imposed on Motor Vehicle Tax for contribution to the State Urban Transport Fund to bolster the urban transport schemes. Cess collections in 2019-20 is estimated at ₹1,489 crore.
The Fiscal Management Review Committee (FMRC) headed by the Chief Secretary noted the reduction in GST compensation to the State. The panel advised the Finance Department headed by Chief Minister B.S. Yediyurappa to follow up with the Centre to get the GST compensation due for December and January released at the earliest. The FMRC met on February 27 and reviewed the current as well as projected fiscal situation.
The State’s share in Central taxes was reduced by ₹8,887 crore while the GST compensation was reduced by ₹3,000 crore, totalling ₹11,887 crore in 2019-20. There would be a reduction of ₹11,215 crore in the State’s share of Central taxes in 2020-21 following reduction in allocation by the 15th Finance Commission. Owing to these cuts, the Budget proposed to hike fuel and liquor prices.
There is more bad news in the Medium Term Fiscal Plan (MTFP 2020-24). It noted that Motor Vehicle Tax collections and stamps and registration fee collection are expected to see a marginal shortfall due to reduction in sale of vehicles as well as on account of showdown in the real estate sector, respectively, the MTFP said.
On salaries
The panel has also instructed the Finance Department that salaries to the Grants in-Aid institutions should only be disbursed on Human Resources Management System (HRMS) starting April 1, 2020. The panel instructed administrative departments to come up with strategies to improve expenditure effectiveness.
The FMRC advised the Finance Department to examine various revenue-generating options on taxes, cess, fee revision for non-tax revenues under various departments, local bodies, boards, corporations, and other parastatal bodies so as to augment their resources and at the same time increase tax to GSDP ratio of the State.
It noted that the government’s committed expenditure reached 90% of revenue receipts on account of increasing salaries, pensions and interest payments.
‘Recover loans from PSUs’
The committee headed by State Chief Secretary T.M. Vijay Bhaskar has suggested that the Finance Department initiate measures to recover loans disbursed by the State government to public sector units (PSUs) and other boards and corporations, as directed by the Fiscal Management Review Committee (FMRC) last year. The Chief Secretary further advised the Finance Department to have regular meetings with the administrative departments at the secretary level to ensure timely recovery of loans.
