No new taxes proposed in Tamil Nadu's populist Budget for FY16

Keeping an eye on next year's Assembly polls, Tamil Nadu Chief Minister O Panneerselvam has offered a slew of sops for the fishermen community as well as the manufacturing sector, and proposed no new taxes in the Rs 4,616 crore deficit Budget for FY16.

PTI| Last Updated: Mar 25, 2015, 14:26 PM IST

Chennai: Keeping an eye on next year's Assembly polls, Tamil Nadu Chief Minister O Panneerselvam has offered a slew of sops for the fishermen community as well as the manufacturing sector, and proposed no new taxes in the Rs 4,616 crore deficit Budget for FY16.

Panneerselvam, who also holds the Finance portfolio, announced exemption of VAT on fishing accessories like fishing ropes and floats, fish net twine, fishing lamps and fishing swivel, apparently to appease the vast fishermen community.

Besides, the government reduced VAT on mobile phones from 14.5 percent to five percent.

Presenting the Budget, Panneerselvam said the state has to rely more on its own strength, besides slow growth in States' Own Tax Revenue (SOTR), even as devolution and grants in aid of the Centre are expected to go down.

"Notwithstanding this increased financial burden and the slow growth in SOTR, our government has decided not to impose any new tax," he said.

The opposition DMK boycotted the proceedings and staged a walkout after its floor leader M K Stalin was denied permission by Speaker P Dhanapal to raise some issues.

Among tax sops offered by the government, which Panneerselvam termed as 'critical concessions' to boost the manufacturing sector, were withdrawal of electricity tax on plants using biomass, excluding bagasse.

He said the government proposes to raise net borrowings to Rs 30,446.68 crore and overall outstanding debt would be in excess of Rs 2.11 lakh crore by end of March 2016.

However, the fiscal deficit would remain at 2.89 percent of Gross State Domestic Product as against the norm of three percent. 

O Panneerselvam, who presented the four-year-old AIADMK government's first Budget in the absence of party supremo and former Chief Minister J Jayalalithaa, waging a legal battle over her conviction in a disproportionate assets case, heaped encomiums on her, saying she has "unfailing courage, benevolence, wisdom and zeal."

Talking on resources for financing the Budget, he said SOTR growth remains a serious challenge even as "sluggish economic environment" in the country has significantly affected the growth in collection of commercial taxes.

Besides, due to the fall in international crude oil prices and the consequent decline in retail rates of petroleum products, commercial tax revenue has been further "dented" to an extent of Rs 1,000 crore in the current year.

At the present rates of petroleum products, a reduction in sales tax revenue to an extent of Rs 2,141 crore per annum is expected during 2015-16, he said.

"Despite such huge tax erosion, this government has preferred not to make any upward revision in VAT on petroleum products unlike other states, where the VAT rates have been increased," the CM said.

Since tax realisation in other categories "is also not picking up", overall growth of SOTR may fall below projected level in the current year and it has been revised to Rs 85,772.71 crore, he added.

On devolution of central taxes and grants-in-aid from the Centre, Panneerselvam said major changes have been brought, based on the recommendations of the 14th Finance Commission.

Though states' share in vertical sharing with the Centre has been increased from 32 per cent to 42 per cent, there is no additional resource flow as the amount already available to states as grants-in-aid is now diverted as tax devolution, he said, adding that the state is further hit because of the "drastic reduction" in the horizontal sharing percentage.

"As a result of these changes, even after shifting of substantial grants-in-aid to tax devolution, devolution and grants-in-aid together will be reduced to Rs 37,526 crore during 2015-16 as compared to Rs 39,057 crore received during 2014-15," Panneeselvam said. Panneerselvam said Tamil Nadu will lose an estimated Rs
35,484 crore in next five years due to these changes and sought compensation out of the allocation earmarked for the NITI Aayog, which has replaced the Planning Commission.

He said the state government will be burdened with a "heavy responsibility" of providing additional share in centrally-sponsored schemes from its own resources without getting adequate increased resource flow from the Centre.

"We therefore appeal to the Government of India that states like Tamil Nadu which have lost heavily in the present backwardness-based devolution formula should be compensated to some extent from the allocation of Rs 20,000 crore earmarked for the NITI Aayog," he said.

On revenue receipts for FY16, he said SOTR is projected at Rs 96,083.14 crore and share in central taxes devolution is projected at Rs 21,149.89 crore and grants-in-aid at Rs 16,376.79 crore.

Thus, revenue receipts for 2015-16 are projected at Rs 1,42,681.33 crore whereas the revenue expenditure is estimated at Rs 1,47,297.35 crore, with revenue deficit at Rs 4,616.02 crore, he said.

Capital expenditure for FY16 is projected at Rs 27,213.17 crore while fiscal deficit is estimated at Rs 31,829.19 crore.

The Chief Minister also proposed net borrowings of Rs 30,446.68 crore as against the permissible limit of Rs 32,990 crore and the overall outstanding debt will be Rs 2,11,483 crore by March 2016.

Meanwhile, Panneerselvam announced a slew of tax sops for the manufacturing sector, saying these "critical concessions" are required to boost the sector.

The tax changes include withdrawal of Input Tax Credit reversal imposed at the rate of three per cent on inter-state sale of goods under Tamil Nadu Value Added Tax Act, 2006, introduced with effect from November 11, 2013.

Besides, mosquito nets of all kinds will be exempted from present levy of five percent VAT.

Apart from that, VAT on cardamom will be reduced from five percent to two percent while for LED lamps, air compressors, pump sets up to 10 HP and their parts, it would be five percent as against the existing 14.5 percent, he added.