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    How Tamil Nadu tabled a tax-free budget amid a fiscal crisis

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    How Tamil Nadu tabled a tax-free budget amid a fiscal crisis

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    Despite being in throes of piling debt — Rs 5.7 lakh crore — Tamil Nadu finance minister P Thiaga Rajan presented a revised state budget for FY 22 that was devoid of new taxes and levies.

    Despite being in throes of piling debt — Rs 5.7 lakh crore — Tamil Nadu finance minister P Thiaga Rajan presented a revised state budget for FY 22 that was devoid of new taxes and levies.
    In fact, Thiaga Rajan’s maiden state budget (also the state’s first-ever paperless one) had a bonus for taxpayers as the Tamil Nadu government promised to slash VAT on petrol by Rs 3, starting August 14.
    “The petrol cess-cut was decided on because this government believes that it has to be held to its promises,” said S Krishnan, Additional Chief Secretary (Finance), speaking exclusively to CNBC-TV18.
    “The government knew it had to pick and choose measures to ensure that its benefits were targeted in the right way,” he added, “The tax-cut on petrol will benefit 2.63 crore two-wheeler owners who have everyday pain at the pump. The tax-cut will put more money in the pockets of the working class.”
    The decision surprised many, including presumably all opposition AIADMK legislators who staged a walkout from the assembly before the budget speech began, over being denied the chance to speak. The AIADMK legislators had raised objections to the Government’s apparent failure to meet election promises, especially the promise of a fuel price-cut.
    ‘No further taxation for now’
    However, the question still remains: how does Tamil Nadu dig itself out of its debt burden without levying more taxes? “Tamil Nadu’s priority now is to collect taxes that are already due to the state, without raising taxes further,” said Krishnan, adding that the government’s priority was not so much fiscal consolidation as it was reform.
    “Fiscal consolidation will happen in the years to come as the government is serious about bringing down debt,” he said, “We are focusing on making improvements to tax administration, which in turn will lead to benefits and plug leakages. Further measures on taxation will take place only after tax that is already due is collected.”
    On the topic of dues to the Tamil Nadu Government, a white paper released by the finance department days ago projected that GST dues to the state were an estimated Rs 2,033 crore by the end of the current fiscal. “We expect between 60 and 70 percent of these GST dues to flow to the state during the course of this fiscal,” said Krishnan.
    ‘COVID second wave caused shortfall in collections’
    The bad news for Tamil Nadu, however, is that the fiscal deficit and revenue deficit continue to be high. The revised budget for FY 22 pegs fiscal deficit at Rs 92,529 crore, which is 4.33 percent of the GSDP. The government has set itself an ambitious target of lowering revenue deficit to Rs 58,692 crore by the end of this fiscal.
    “The fiscal and revenue deficits went above projections made in the interim budget estimates,” admitted Krishnan, “The revenue deficit has increased owing to a shortfall in expected revenue, while their projections in the interim budget were hopeful since they were made before the COVID second wave.”
    Is social spending sustainable?
    Given that growth expectations and commercial tax estimates were not fulfilled this year, Tamil Nadu’s own tax revenues dropped by Rs 7,000 crore. This has quite naturally caused many to question the fiscal viability and sustainability of the state’s social spending and universal basic income schemes. However, the finance ministry insists that the government is conscious of where it is implementing its income schemes.
    “The government is conscious about implementing a targeted universal basic income scheme,” said Krishnan, “The government is aware that universal income schemes should only go to the truly deserving.” Could that be a hint of pragmatic social spending? Only time — and the state’s post-pandemic taxation — will tell.


     
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