THE work for the ensuing Karnataka state budget 2022-23 has begun in right earnest, it appears.
A report appearing in Deccan Herald has said that a circular has been issued by the state’s finance department asking various departments to detail the non-tax revenues revisions undertaken during the last three years.
This exercise is important as the state has to generate more revenue and ensure that it is able to present a grand budget for 2022-23, just a year before the state heads for another round of assembly polls.
What are non-tax revenues?
As the name indicates these are revenues generated from a plethora of avenues including fines, user charges, royalty derived from mining, interest and dividends.
Why is there focus on non-tax revenues?
Three major reasons are attributed to the focus on non-tax revenues.
Most of the items on which tax can be levied have already been subsumed by the Goods & Services Tax or GST which is in force across the country since July 2017.
Avenues like excise (liquor), road tax, stamps and registration can be taxed more but the process could boomerang and the government doesn’t want to be seen as falling short of meeting aspiration of people just a year before the assembly polls.
The Union government has made it clear that the compensation cess payable to states will not be extended beyond July 2022. The cess was to meet the revenue shortfall likely to be experienced by a state post the rollout of the GST.
Now it appears only the interest on borrowings undertaken during the pandemic-hit years of 2020-21 and 2021-22 would be covered post July 2022.
Although CM Basavaraj Bommai has been reported as being keen on the continuation of the compensation cess there is no guarantee that the Union government would budge as its own finances are stretched.
Falling share of central taxes
Karnataka’s share of central taxes is on a declining trend having hit a high of ₹30,919 crore in 2019-20. In 2021-22 it is budgeted that this would be ₹24,273 crore.
Fiscal year 2020-21 was indeed a bad year as Karnataka’s share in the central pool was only ₹20,053 crore against the budgeted figure of ₹28,591 crore. The fall in the central pool collection being attributed to the pandemic.
Unable to garner the budgeted quantum of monies from the central pool, Karnataka saw its borrowings balloon in fiscal year 2020-21.
Borrowings rose to ₹70,382 crore (revised) against the budgeted ₹52,918 crore.
From a positive to a negative
The pandemic completely distorted the state’s financial position. Against a budgeted modest revenue surplus of ₹143 crore in 2020-21, the state swung into revenue deficit of ₹19,486 crore.
And the misery is expected to continue in 2021-22 with the revenue deficit budgeted at ₹15,134 crore.
Flat non-tax revenues
In fact, as per state government documents, the share of non-tax revenues have remained virtually flat. It was ₹7,680 crore in 2019-20 rose to ₹7,730 crore in 2020-21 (revised) but is projected to touch ₹8,258 crore in the current fiscal year.
Compared to the revised target of ₹7,730 crore, the budgeted target works out to a modest 6.83 per cent rise. The question is whether the state would be able to garner this quantum of non-tax revenues.
For the period April to August 2021, non-tax revenue collection was buoyant coming in at ₹3,922 crore in the April-August 2021 period representing a jump of 103 per cent year on year.
The question is whether the balance of the budgeted amount of nearly ₹4,340 crore can be mopped or not?
During the same period April-August 2021, Karnataka earned revenues of ₹43,000 crore representing a 43 per cent year on year rise. This could be optically a bit misguiding as the state saw its revenues dip in the comparable period in CY2020.
Alarmed at media reports of a possible hike in non-tax revenues, the office bearers of the Federation of Karnataka Chambers of Commerce & Industry are slated to meet up with senior bureaucrats and the CM next week.