TN white paper on state’s finances hints at tax hike in upcoming budget

The white paper tabled by Tamil Nadu finance minister P Thiaga Rajan on the state’s finances on Monday (August 9) blamed the erstwhile AIADMK government for deteriorating revenue condition, indicating that the M K Stalin government is ready to increase taxes to reduce the deficit.

P Thiaga Rajan (PTR) said the AIADMK government’s “wrong policies”, supplemented by COVID pandemic, lead for a steady decline in state’s finances from ‘surplus revenue’ (during DMK’s last government) to ‘deficit revenue’ in the past 10 years.

The Stalin government’s first state budget will be presented on August 13.

The white paper presented in the state assembly on Monday showed steady decline in Tamil Nadu’s finances, particularly after 2013-2014. The finance minister also claimed that during the DMK regime, between 2006-2007 and 2008-2009, the state had revenue surplus. “From a revenue surplus of Rs 1,760 crore in 2012-2013, the fiscal balance worsened to a revenue deficit of Rs 1,789 crore in 2013-2014 that grew almost four times to Rs 6,408 crore in 2014-2015. The revenue deficit widened to Rs 35,909 crore in 2019-2020 even before the COVID-19 pandemic struck,” the report claimed.

The year 2020-21 was marred by COVID-19, which has harmed the state’s exchequer badly. Preliminary accounts indicate that revenue deficit could be Rs 61,320 crore, which is 3.16 percent of Gross State Domestic Product (GSDP) — more than the entire normally permissible fiscal deficit.

“The worsening deficit situation has led the state to be over-reliant on debt. The public debt today is Rs 2,63,976 per family in Tamil Nadu,” said the minister.

The myth of ‘zero taxes’

The white paper claimed that Tamil Nadu has lower tax rates than many states, leading to continued losses in revenue.

“The proportion of commercial taxes to GSDP declined, reaching 4.49 percent in 2019-2020 and 4.19 percent in 2020-2021. The state lost approximately 0.27 percent GSDP in revenue due to reduction in revenue from abolition of vend fee and reduction of license fee was not fully made up by increase in VAT (value added taxes) on IMFS (Indian Made Foreign Spirits). Similarly, though the number of vehicles registered in Tamil Nadu is higher than in the neighbouring states, the total revenue as motor vehicle tax has not kept pace since the tax rates have not been revised in the past 15 years,” the report added.

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“The past government had boasted of zero taxation, but that is not what a good government should do.  A good government should collect reasonable taxes from the economically progressed and use it for welfare purposes such as laying roads, providing water facilities, distributing old age pensions, etc,” the minister added.

PTR also came down heavily on the erstwhile government’s decision to increase subsidies. He hinted that some of the subsidies may be revisited.

State PSUs in losses

Out of the 60 state public sector units (PSU), 26 are incurring losses, said PTR, expressing concern particularly about the state of affairs in Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) and State Transport Unit (STU).

The while paper claimed that the outstanding debt of TANGEDCO, TANTRANSCO and State Transport Unit (STU) stands at a staggering Rs 1,99,572.55 crore.

“There has been no revision of tariff for the past seven years. Against the average cost of supply of Rs 9.06 per unit, the recovery from 18 percent of the electricity supplies to the agriculture sector is nil, while the subsidy payout is Rs 3.32 per unit. Hence, TANGEDCO does not get fully subsidized for the full cost of supply to agriculture,” the paper stated.

The minister said that people who consume more electricity are receiving higher subsidies.

The STU is making a loss of Rs 59.15/ kilometre. This at a time when the state has made travel free for women in city buses.

At a time when political parties in the state are gearing up for local body elections (urban), the white paper has pulled up the past AIADMK regime for losing grants from the Union government for not conducting the local body elections on time.