There is a misconception among most Nagas that Nagas are richer than the Mainland Indians. Statistics prove otherwise. In 2011-12, India as a whole had a per capita income (PCI) of Rs. 60,972 as against a PCI of Rs. 56,116 for Nagaland. Prices in Nagaland are higher than average prices across the country and if we adjust the income level with the price level we have a lower real PCI. Economic growth is confined to the service sector or to be more precise is limited to the government sector for creating jobs in unproductive administration. Ironically, the central government at times has to limit its funding because the state doesn’t utilize the full amount. The evidently poor state of infrastructure needs no mention here. The rich-poor divide is becoming greater everyday and need to be looked into. Added to all these problems is the unsolved Indo-Naga issue.
Against this backdrop, one cannot but appreciate the central government for being generous in its funds to the Nagas. The state is placed under Special Categories States – states which are too poor to raise enough revenue within them or have international boundaries, hilly terrains or have distinct socio-economic developmental parameters. But funds from the central government are not enough for the state to achieve a high level of economic growth and development. This is where the necessity of generating the state’s own revenue comes into the picture.
The state gets revenues in three ways –
(a) Tax sharing and Grants from the central government
(b) Borrowings from the public, market institutions and loans from the central government
(c) Raising revenue within by way of taxes and fees.
Firstly, Funds have been poured into the state from the central government but the state seems to be making the least out of it. One has to keep in mind that the allocation for states under special categories comes from the planned outlay. The state will do well to utilize the grants from the central government because the funds are given with the aim of developing the state rapidly to bring parity in the country.
Secondly, Borrowings and loans can also be used for development of the state. The loans given by the central government carries a low rate of interest while those borrowings raised from the public and market institutions carries with it a higher rate of interest. Since the state mostly involves in development which may not bring high rate of returns, development through borrowings has a limited scope.
Thirdly, the state raises revenues within and this is where the state is lacking behind. The sources of revenue within include taxation and fees. Ironically, people feel that there is no scope at all for taxation and raising revenue within the state.
It is well-known that the Indian constitution makers had made the constitution in such a way that the scope for raising revenue by the states is limited and provisions for taxes which raise higher revenues like income tax, corporation tax, import and export duties etc are limited to the central government. The central government then allocates funds to the states based on certain criteria. Under Gadgil-Mukherjee Formula, grants to states are given on the basis of the following weightage: 55% for population, 25% for PCI, 5% for fiscal management and 15% for states with special problems. If our state is to come under this general category, we will be in deep financial trouble because the state does not merit in areas which bring funds; it has a low population which accounts for 55% of weightage criterion for grants and the government’s fiscal management is weak accounting for 5% of criterion for grants.
Being under special category, we have the privilege of getting 90% of the central assistance as grant and remaining 10% as loan unlike other states which get 30% as grant and 70% loan. But we need to be reminded that we are not the only state under this category; other states like Arunachal Pradesh, Assam, Himachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram etc also comes under this category.
Because of socio-economic and political reasons, the central government may not do away with this special category or for that matter take out the state from it but the danger is when the union government increases the ratio of funds treated as loans. Haven’t we suffered since 1972 when the state was taken out from being under the Ministry of External Affairs? The whole point here is that government policies change and we have to prepare ourselves before we are forced to do it. India is integrating much with the world economy for trade and equal trade does not favor subsidies and high taxes which are the sources of our income from the centre. The increase in fuel prices and cutting subsidies are signs of a changing atmosphere.
Limited as it may be, there are areas in which the state can generate revenue. The areas in which the states are allowed to levy taxes in India include agriculture, luxury goods, entertainment tax, sales tax, tax on consumption and use of electricity, excise tax on liquor, opium, narcotic drugs etc, taxes on lands and buildings, taxes on mineral rights, toll tax, animal tax and a whole lot of taxes like capitation, profession, succession and so forth.
Among all these options of taxation, there are certain limitations for the state to levy tax: income on agriculture certainly cannot be taxed; tax on liquor is out of question since the state is a dry state; taxes on mineral rights won’t be popular because of the idea that land and its mineral rights belong to the Nagas alone and should be exploited only after Naga Independence and tax on animals won’t be feasible because of it being a small industry.
The state however can levy sales tax, tax on purchase of luxury goods, levy entertainment tax, have a proper tax structure on land and buildings, increase excise duties on medicines and other items, properly collect taxes on vehicles and increase fees wherever necessary.
With the low revenue that the state generates and often finds itself in deficit, one wonders why sales tax is not popular with the state government. A state like Andhra Pradesh levy sales tax on 172 items and that is how it is getting enough revenue to develop rapidly. The state need not levy tax on every item. Such policy will hurt the business community and the poor consumers.
However, it can levy tax on luxury goods like cars, drinks, fashion, cosmetics, fragrances, watches, jewelry, luggage, handbags, chocolates, high priced tea, branded cloths etc, necessary goods and addictive substances like tobacco, alcohol and narcotics. Being a poor state it won’t be wise to tax necessary goods but the state can generate considerable revenue from taxing luxury items; a person buying a branded cloth of rupees ten thousand will not forego his consumption because he has to pay rupees five hundred as tax or for that matter buying an LCD/LED TV for rupees forty thousand and paying one thousand as tax. A considerable amount of transactions take place in luxury items and the government will do well to generate revenues from these transactions.
Entertainment tax can generate much revenue. Tax on tickets for watching beauty pageants, visiting theaters, concerts, sports cups etc can be levied. The Maharashtra Government levies 45% as tax on movie tickets below Rs. 250. In Goa, where movie tickets costs more than Rs. 75, 25% tax is levied. Maybe Nagaland is the only state where taxes are not levied and collected properly.
Heard from a friend that tickets for watching Miss Nagaland contest last year costs Rs. 300 and Rs. 500. During Naga wrestling, people buy donor tickets costing thousands of rupees. These are all conspicuous consumption. The government can levy tax on such expenditures without reducing the numbers of people watching them.
On collection of proper fees, the various departments authorized to collect fees come to mind. One need not emphasize the need for putting the electricity department in order and issuing proper meter boxes. Unpopular as it may sound, NST bus fares will have to be increased with the inflation rate or at a certain percentage every year, increase water fees provided by the government and so on.
With taxation people will be more conscious of the activities of the government and even check its conspicuous consumptions. Also, the government can channelize the funds from richer section of the state for the development of less developed areas. In fact, when the government promised a development package of Eastern Nagas, it was merely saying that it would ask funds from the central government for these areas.
No community ever appreciates taxation and to raise tax is very unpopular for a government to do but the government cannot forever be disillusioned to the reality taking place around it. As taxes are imposed, the tolerable level of taxation increase in the future and people adjusts their level of consumption to it. With the huge mandate that the people has posed on the new government, one hopes the government will consider taking the harsh decision.
Chothazo Nienu,
University of Hyderabad
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