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Making sense of the tax numbers
August, 29th 2007
The Union governments tax revenues have maintained decent growth in the last three years. That is the broad picture. A closer look reveals something more interesting. The sharpest rise has been seen in revenues from direct taxes and the service tax, while the contribution of excise and customs to the overall revenue kitty has seen a decline. This is also borne out by the rising direct taxes to GDP ratio in the last few years.
But have all the major tax collection centres in the country witnessed a uniform trend in revenue growth? In other words, if revenues from direct taxes from the entire country went up by over 75 per cent from Rs 1.3 lakh crore in 2004-05 to Rs 2.28 lakh crore in 2006-07, have tax collections from all the different cities/regions grown by a similar margin? The service tax collections went up one and a half times during this period. Have the different service tax collection centres also seen a similar growth rate?
Let the figures speak for themselves. In direct taxes (which mainly include personal income-tax and corporation tax), only six regions or cities recorded a revenue collection growth rate that was higher than the national average. These were Ahmedabad (87 per cent), Bangalore (85 per cent), Mumbai (80 per cent), Hyderabad (111 per cent), Chennai (78 per cent) and Delhi (91 per cent).
Note that Kolkata does not figure in this list. The collection of direct taxes from Kolkata was estimated at Rs 5,686 crore in 2004-05 and two years later it went up by 72 per cent to Rs 9,806 crore in 2006-07. This is below the national average, but certainly far better than the 20 per cent growth seen by Guwahati, 22 per cent rise by Cochin, 24 per cent growth by Bhopal or the 33 per cent growth recorded by Patna. Meerut, which covers a large region, has seen a growth rate of only 30 per cent in direct tax collections in this period.
Nagpur, Jaipur, Chandigarh, Bhubaneswar, Kanpur and Lucknow are still better with the growth rate in their direct tax collections ranging between 43 per cent and 66 per cent in these two years. But if direct tax collections are an indication of the level of income generated in a certain region (more than a third of direct tax revenues are accounted for by personal income-tax), the picture that emerges is hardly edifying. Barring Kolkata, the whole of east India and Madhya Pradesh seem to be languishing with their tax collection growth rates staying at half the national average. If ever one needed proof of unbalanced economic growth in India, here it is.
The pattern of growth in service tax collections, however, is more interesting and in many ways less disquieting. Service tax collections from all over the country grew a little more than one and a half times in the last two years. Among the big tax collection centres, only nine regions/cities bettered that growth rate Mumbai, Pune, Vadodara, Meerut (all of which more than trebled their collections), Bangalore (181 per cent), Hyderabad (188 per cent), Nagpur (188 per cent), Delhi (194 per cent) and Bhubaneswar (182 per cent).
There are some pleasant surprises in this list. With their healthy growth rates in the last two years, Pune, Vadodara, Meerut, Nagpur and Bhubaneswar validate the widely held theory that the services sector boom is no longer restricted to only the big cities, but have begun spreading in smaller cities. Further confirming this trend is the fact that centres such as Mysore, Cochin, Visakhapatanam, Coimbatore, Lucknow, Ranchi, Jaipur, Bhopal and Shillong have all doubled their service tax collections in this period. Consequently, the gap between the national growth rate and the service tax collections growth in these cities across the country has become quite small. There are only two laggards Kolkata (with a rise of only 87 per cent) and Chandigarh (86 per cent).
Why Kolkata has managed to show a modest growth rate in the collections of the service tax or why Bhubaneswars performance in tax collections is getting better may be an indication of a geographic shift of economic growth impulses in the east. Similar shifts are noticeable in the rise seen in the tax collection growth rates for Pune and Vadodara. What of course remains unexplained is why Chandigarh should be only marginally better in service tax collection than Bhopal and Jaipur, and worse than Coimbatore. Many more such questions remain unanswered.
The short point is tax data analysis in this country is largely focused on the aggregate numbers. This is largely because disaggregated data on central tax collections from different centres or cities are not easily available in the public domain. Thus, national debates take place on whether the indirect taxes to GDP ratio should come down further or not. But not much thought goes towards understanding why a certain region has done better in generating more tax revenues than some other region.

A K Bhattacharya

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