By Sumarbin Umdor
The Chief Minister of Meghalaya had recently pleaded with the Union government for special assistance of Rs. 3000 crore for financing as many as seven important projects in the state. This ia a lot of money when it comes to a small state like Meghalaya. To put things in perspective, Rs. 3000 crore is about 18 percent of the current state’s GDP, about 118 percent of the plan and non-plan central assistance we received in 2011-12 and also about three times of revenues raised by the state government. This amount if distributed to the poor would be enough to wipe out income poverty in the state. Each of the BPL families would get a little over one lakh rupees or each person below poverty about Rs. 83,000 depending upon whether one uses the poverty estimates of the state government or that of Planning Commission.
This month it was reported that the State Task Force for Resource Mobilisation has submitted another report to the state government with recommendations that is expected to yield additional revenue of Rs. 30 crore annually. While the details of this report are not available, a careful scrutiny of the state government finances, show the possibility of mobilising 100 times the amount suggested by the Task Force.
Meghalaya has very weak revenue base and revenue mobilized through own tax and non-tax sources is very low. While the state government has introduced some measures to improve the tax GSDP ratio, there is very little attention given to the huge loss of revenue to the state on account of continuous revenue leakage.
According to the Audit Report of the government of Meghalaya of 2010-11, during 2006-07 to 2010-11 the revenue loss to the state government was Rs. 959 crore on taxes on sales and trades of which only Rs. 167 crore has been recovered from the central government on account of VAT compensation; Rs. 73 crore on state excise of which only 0.22 crore has been recovered; Rs. 1236 crore on motor vehicles receipts of which only Rs.0.04 cr has been recovered; Rs. 53.3 crore on account of avoidance of royalty and fees on coal and limestone and Rs. 100 crore in case of forest receipts of which only 5.7 crore has been recovered. The amounts mentioned are only for those cases detected by the audits during inspections. The actual scale of the tax evasion and fraud and the resulting revenue loss to the state would actually be several times the amount put out in these reports.
Coming back to the special package in question, the CM has passionately projected these projects as having the potential to change the state. However, given the economic downturn facing the country, it is unlikely that the centre would be providing the additional funds. In fact, if the present economic condition persists it is bound to adversely impact on the central government revenue collection which in turn will affect the transfer of funds to states. Will this mean that the state government would have to shelf the above projects due to lack of central funds? Going by the figures mentioned in the CAG report, it is very much possible for the state to mobilise Rs. 3000 crore or more by increasing revenue productivity and plugging the evasion and leakage of tax and non-tax revenues. This can be achieved by strengthening the internal wings of departments involved in revenue collection so that the loopholes and defects causing loss of revenues can be identified and stopped.
For instance about 55 percent of VAT assessee in the state fall within one lakh and 29 percent within 5 lakhs. Both of these are threshold levels as only those with turnover above Rs. 5 lakhs are liable to pay the taxes at prescribed rate. There is therefore urgent need for better coordination among the departments to bring unregistered dealers/suppliers under MVAT and ensure tax compliance.
Further, there is need to re-examine the scheme of exemption and concession to industrial units under the Meghalaya Industrial Policy as industries have been found to be flouting the formulated norms relating to export obligations, employment of locals and also claiming of irregular tax exemptions/concessions and remission.
Other measures include strict implementation of the Meghalaya Professions, Trades, Callings and Employments Act in all sectors – salaried and self-employed- to widen the tax base so as to realize the full potential of the tax as in the case of Maharashtra and Tripura. Deduction of professional tax at source for non-salaried category of service providers must be initiated.
Government also need to strengthen information sharing and cross verification system among different agencies/departments to ensure tax compliance and prevention of evasion of payment of royalty and fee. This is particularly important in respect of export of coal and limestone where there is a huge discrepancy in the data of state government department and that of the Customs department of the central government. Establishment of check posts at all strategic locations to ensure that there is no illegal export of minerals and forest produce without payment of the required royalty and fee is imperative. Timely revision of royalty and export fees on forest produce and minor minerals is another step that needs to be addressed.
Other measures include adoption of policy of rational user charges for different services extended by the government to ensure maximum recovery without affecting the rendering of such services to the common man. Reforms of government public enterprises should include privatization of sick units to stop the recurring investment of limited public resources in these units.
There is this country song with the following line ‘if my nose was running money honey I’d blow it all on you’. This is actually what is happening in Meghalaya where there are crores of rupees right under the government’s nose and all that is needed is for it to blow it out and use it for the welfare of the citizens.
The author teaches Economics at North Eastern Hill University.