January 22, 2019

Budget 2019 must focus on diversifying sources of govt revenue; over-reliance on taxes is axing benefits of welfare schemes

In this Firstpost article, Senior Associate Meenaz Munshi and Senior Analyst Harsh Vardhan Pachisia explain the welfare consequences of the government's revenue generation choices in the run-up to Budget 2019. Excerpts:


"With less than 4 percent of Hong Kong’s built-up area zoned for residential housing, the government leases out land to developers for astronomical prices that helps generate almost 30 percent of its entire revenue. This has made Hong Kong among the least affordable housing markets in the world. Housing prices are almost 20 times greater than median household income and millions of people are forced to live in 'cage/coffin homes', houses less than the size of a single parking space.


A similar phenomenon is seen in India where direct tax collections remain extremely low and there is an overreliance on revenue from fuel sales. Central and state fuel taxes comprised between 30 percent to 40 percent of the retail price of fuel in 2018. Further, the standardised excise duty set by the centre has been increased nine times since 2014 while being reduced only once last year. On the other hand, state-apportioned sales tax/VAT is allocated ad-valorem, meaning that states inherently benefit with higher tax earnings when the price of fuel increases. Due to these factors, we have seen excise duty and sales taxes/VAT collections grow annually at rates of 22 percent and 11 percent, respectively, since 2011-12..."


Read the whole article here.

Topic : State Capacity / In : OP-EDS
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