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Maharashtra Taxes Beedis But Salary Bill Goes Up In Smoke

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India’s most industrialised state (some may disagree) presented its State Budget last week. While Maharashtra is the most indebted state in the country at Rs 2,28,590 crore, the state has taken some serious first steps to improve its balance sheet.

 

For starters, it slapped a 12.5% tax on beedis, something perhaps contemplated earlier but never done, among other taxes. Or interesting moves like exempting battery operated vehicles from Motor Vehicles Tax.

 

But the big problem, as SPR Foundation’s Dhritiman Gupta finds, is the state’s salary, wage and pensions bill, which has risen a whopping 37% from Rs 25,996 crore to Rs 35,624 crore in just two years.

 

Moreover, there was a drastic rise in subsidies in 2011-12. The amount was Rs 11,700 crore as against Rs 7,400 crore in 2010-11; a rise of 58%. The small silver lining is that it is expected to fall to Rs 8,798 crore in 2012-13.

 

Increased Spend On Scholarships

 

Moreover, the state’s Grants-in-aid (salary) and spending on scholarships & stipends have also been rising. Scholarships rose from Rs 2,108 crore to Rs 2,748 crore in a year, though it’s expected to come down to Rs 2,622 crore this year. IndiaSpend in the past has reported how Maharashtra has been trying to attack ghost scholarship claimants, running into hundreds of crores.

 

Investments don’t look encouraging. They fell from Rs 10,570 crore in 2010-11 to Rs 9,082 crore in 2011-12; a decrease of 16%. It is expected to recover moderately to Rs 9,329 crore in 2012-13.

 

Overall, revenue expenditure is expected to go up to Rs 1,70,110 crore in 2012-13 from Rs 1,52,839 crore in 2011-12; up 11%. If all the increases in expenditure are not met by a drastic increase in revenues, the aim of a Revenue Surplus of 0.01% of GDP in 2012-13 will be difficult to achieve.

 

Here’s a look at some of the Revenue Expenditure heads in the Maharashtra 2012-13 Budget.

 

  2010-11 (in Rs cr) 2011-12 (in Rs cr) 2012-13(BE) (in Rs cr)
Total 1,31,005 1,52,839 1,70,110
Major Heads
Salaries 15,329 18,194 20,629
Wages 782 1,486 1,603
Pensions 9,885 12,373 13,392
Grants-in-aid (non-salary) 18,204 23,451 25,570
Grants-in-aid (salary) 25,942 28,370 31,251
Scholarship/Stipend 2,108 2,748 2,622
Subsidies 7,400 11,700 8,798
Interest Payments 16,158 17,814 19,035
Investments 10,570 9,082 9,329
Repayment of loans 4,773 6,108 9,601

Source: Maharashtra Budget 2012-13

 

Now, let’s look at the fundamentals of Maharashtra’s economy. A Fiscal Deficit of 1.73% of GDP is admirable given the national figure was 5.1%. The heartening fact is that the Fiscal Deficit was less than projections in Budget 2011-12.

 

The Tax Revenue collections have also been better than budgeted at 8.34% of State GDP in 2011-12. The Total Debt Stock and Interest Payments have also been kept under control. Total Debt Stock was 19.1% as against a budgeted 19.17%. Interest Payments were 13.8% as against a budgeted 14.8%.

 

Increased Revenue Deficit

 

The Maharashtra government has, however, faced problems balancing its Revenue Account. It is on account of higher than anticipated revenue expenditures.

 

Despite a budgeted balance on revenue account, Maharashtra raked up revenue deficits of 0.17% of GDP. However, Budget 2012-13, projects a minute surplus of 0.01%. This is on account of the new tax proposals, which are expected to bolster tax revenues. Maharashtra’s financials are shown further in the table below.

 

Maharashtra Financials 2010-11 2011-12 (BE) 2011-12(RE) 2012-13 (BE)
Revenue Deficit(+),Surplus(-)/GDP 0.06 0.00 0.17 -0.01
Fiscal Deficit/GDP 1.77 1.93 1.73 1.72
Tax Revenue/GDP 8.09 8.23 8.34 8.12
Total Debt Stock/GDP 19.01 19.17 19.10 18.84
Interest Payments/RR 14.78 14.85 13.81 13.55

(Figures in %), RR-Revenue Receipt, GDP- Gross Domestic Product of Maharashtra

Source: Maharashtra Budget 2012-13

So let’s take a look at just how Maharashtra is going to raise revenue.  The table below showcases the various tax proposals put forth in Maharashtra’s 2012-13 Budget.

Tax Proposals

Tax Previous Rate (%) New Rate (%)
VAT on sales of furnishing cloth at last point of sales 0 5
Tax on Beedi 0 12.5
Tax on LPG for domestic use 0 5
Tax on Plaster of Paris 5 12.5
Tax Rate on ATF (for all places except Mumbai and Pune where the rate is 5%) 4 5
Entry Tax on Natural Gas 0 12.5
TDS on Works Contract executed by unregistered dealers 4 5

ATF: Aviation Turbine Fuel, LPG: Liquid Petroleum Gas

Source: Maharashtra Budget 2012-13

 

New taxes have been introduced the most interesting being the 12.5% tax on beedis. Beedis have never been taxed before given that they are consumed by people in the lower income group.

 

Besides this, a proposal has been made to introduce tax collection at source in sale of sand where much evasion is believed to happen. There has been a proposal to impose a Purchase Tax on Cotton and Oil Seeds under the Maharashtra Value Added Tax (MVAT) Act.

 

Motor Vehicle Tax is levied on cars and jeeps as per their price. Currently, it is 7 per cent for vehicles costing up to Rs 7 lakh, 8 per cent for vehicles costing between Rs 10 to 20 lakh and 9 per cent for vehicles costing above Rs 20 lakh.  The Budget proposes to increase the tax rate by 2 per cent on petrol cars and jeeps and by 4% on diesel cars and jeeps.

 

The state budget has also proposed a few Tax Concessions. The table below showcases these proposals.

 

Previous (%) New (%)
Tax on Cotton Yarn 5 2
Tax on Stationary 12.5 5
Machinery used in Poultry 12.5 5
Tax on Cashew Nuts 12.5 5
Processed Vegetarian Food 12.5 5
Adult Diapers, Raincoats, Safety Helmets, Sanitary Napkins 12.5 5

Source: Maharashtra Budget 2012-13

 

Exemptions on some essential commodities like rice, wheat, flour etc. is being extended till 31st March, 2013. Tea will be taxed at the low 5% till 31st March, 2013.

 

The Budget proposes to reduce the tax rate by 2 per cent for each of the following slabs, on purchase of a new motor vehicle manufacturer fitted with a CNG kit.

 

The new tax rate will be 5 per cent for vehicles costing up to Rs 10 lakh, 6 per cent for vehicles costing between Rs 10 to 20 lakh and 7 per cent for vehicles costing above Rs 20 lakh. Battery operated vehicles are being fully exempted from the Motor Vehicles Tax.

 

While it imposes a 12.5% tax on beedis, Maharashtra’s salary & pension bill is up 37% in 2 yrs! Our analysis of the state’s budget

 

While it taxes beedis, Maharashtra’s salary, wage & pension bill is up 37% in 2 yrs! Our analysis of the state’s budget

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