As per constitutional provisions of Indian federal finance, value added tax (VAT) (and sales tax) is the main source of revenue for the state government. Value added tax (including sales tax) collected by the Directorate of Commercial Taxes, West Bengal, accounts for approximately 62 per cent of state’s own tax revenue (SOTR). Studies on collection of taxes suggest that revenue from all taxes not only depends directly on the nature and growth of the tax base but depends also on other factors such as economic reforms, global and national economic condition and tax effort of the tax collecting department. The motivation of this article is to try to analyze the nature of the trends in collection of VAT in West Bengal during recent years and to find out the effect of different explanatory variables on collection of VAT. JEL Classification: H26, H71, H3
This article examines the interlinkage between fiscal consolidation targets and states’ developmental expenditure under capital account. While fiscal consolidation targets have enabled states to take corrective measures to reduce deficit under the revenue account, the effect of the same is studied on developmental expenditure under capital account. For analysis, the fiscal deficit and developmental expenditure under the capital account have been compared with the fiscal deficit targets and general category states’ average benchmarks for fiscal indicators for three phases (corresponding to the periods of three finance commissions). It is argued, that, while fiscal consolidation has helped to improve the state finances, the stringent fiscal targets have further reduced the developmental expenditure under capital account. In view of this, it is suggested that the states, which are historically stressed, should be allowed to borrow an additional amount of 0.25 per cent of GSDP each year over and above the existing limit, provided these states make efforts to reduce deficit under revenue account and spend the extra borrowings on developmental expenditure under capital account.
The recent paper by Raychaudhuri and Roy (2021) in the South Asian Journal of Macroeconomic and Public Finance has been both timely and intensely thought provoking as it suggests an alternative approach for intergovernmental fiscal transfer in India. Fiscal transfers to subnational governments by the Finance Commissions in India is critical for maintaining the spirit of co-operative fiscal federalism in the country and is designed to improve the overall fiscal health of the economy. Rewarding the states for their efforts in improving public investment management would certainly help make the devolution rules for the Finance Commission time consistent and truly welfare- and growth oriented, and it would also help address the issue of vertical and horizontal gap in a more sustainable manner. JEL Classification: H77, H71, E62, H72
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