Low revenue growth has set the alarm bells ringing in the Parkash Singh Badal government after it emerged that revenue from value-added tax (VAT) grew at 1.39% from April to June — the lowest among all northern states.
And, Punjab’s growth of VAT revenue in 2014-15 had been the lowest among all states at 4%, according to a confidential document the Punjab government prepared earlier this month after high-level deliberations held to review the status of VAT receipts.
At this meeting, the functioning of officers of the excise and taxation department headed by deputy chief minister Sukhbir Singh Badal came under sharp scrutiny and they were directed to put in best efforts to increase tax compliance.
Secretary (expenditure) Jaspal Singh set the ball rolling when he told the excise and taxation officers that “VAT revenue in the automobile sector is registering decrease, whereas the collections under the motor vehicle tax are showing an upward trend,” government sources privy to what transpired at this meeting told Hindustan Times.
Another shocking fact that came to the fore was that during the current year, purchase tax received from procurement agencies was about Rs 170 crore less compared to last year indicating a scam of sorts.
This revelation prompted the government to direct financial commissioner (taxation) Anurag Aggarwal to analyse the decline in revenue from purchase tax in the light of actual quantity of wheat purchased.
However, the taxation wing officers held continuing decline in revenue from the automobile sector and low growth of revenue from the cement sector responsible for the sluggish growth of VAT.
As per the “latest accounts figures,” against the budgetary estimate of generating Rs 17,851 crore from VAT, Rs 7,674 crore was achieved in the first six months (April to September 2015) of this fiscal.
A finance department official present at this meeting pointed out that from 2009-10 to 2014-15, the cumulative growth rate of VAT in Punjab was 15%, even as Gujarat registered 19% growth and Haryana 16%.
Senior officers of the taxation department held “single-stage taxation” that was introduced by breaking the VAT chain as “one of the reasons” leading to “low revenue growth.”
Lack of enforcement
Government sources say lack of enforcement also emerged as another vital cause behind the decline in VAT growth. The financial commissioner (taxation) has been asked to dissect the reasons responsible for falling VAT revenue due to enforcement failure. Also, the government has sought a report from the officer about the fall in revenue from foodgrains, automobiles, cement, rice shelling etc.
It emerged at the meeting that outstanding arrears of VAT till September amounted to Rs 1,239 crore and the revenue locked up in litigation was Rs 1,960 crore. In another case pertaining to the Food Corporation of India (FCI), Rs 946 crore was yet to be recovered, while Rs 660 crore was recoverable from foodgrain agencies.
As the taxation wing officers stated at the meeting that a “substantial chunk” of revenue was being lost on account of e-commerce, the FCT was directed to carry out a detailed quantitative assessment of the “adverse impact of e-commerce” on VAT revenue “rather than making a generalised statement without corroborating data.”
The possibility of levying entry tax on coal coming into the state, especially for use by thermal plants, was also hotly debated upon.
The excise and taxation mandarins were tersely told to “put in all efforts (including field visits on Fridays and Saturdays to expedite the recovery of recoverable arrears) to increase tax compliance” and achieve the targets fixed by the finance department.
Why state govt is worried
Rs 170 crore Decrease in purchase tax received from procurement agencies in 2015 compared to last year despite bumper wheat crop
Rs 7,674 crore Revenue from VAT in first six months of this financial year
Rs 1,239 crore Outstanding VAT arrears till September
Rs 1,960 crore Revenue locked up in litigation
1.39% Revenue growth from VAT in first quarter of this financial year
Rs 660 crore Recoverable from foodgrain agencies
Why revenue from VAT is low
Due to higher VAT rate (14.3%) in Punjab, diversion in trading activity is taking place. VAT is 13.125% in Haryana and 12.5% in Delhi as well as Chandigarh
There has been a fall in revenue from foodgrains, automobiles, rubber and its products, cement, building material and rice shelling
Closure of iron and steel industry in Punjab
Large number of tax evasion cases detected but recovery stuck in litigation
Single-stage taxation by breaking VAT chain