Tax & Non Tax Collection

The low buoyancy of almost all the state's own taxes has meant that tax collection has been declining, a situation that can be addressed in the ways listed below.

·   Land revenue is a major area of concern. The Department of Land Revenue collects fees and taxes annually for various work contracts and as land revenue. Rates, which remained unchanged for decades, were revised upward on September 1, 1998, which may have a positive impact on collection. A point of major concern is the alarmingly high cost of land revenue collections; it was more than seven times the gross collection between 1994-95 and 1996-97. One reason for this is the high departmental expenditure on other activities, which are subsumed under tax administration expenses. Other states face a similar problem, but even by national standards, Sikkim's expenditure on tax collection is high. These need to be reduced and realigned along with the rates of collection so that the Department of Land Revenue becomes a net revenue earner.

·   Sikkim, like many other states in India, does not levy agricultural income tax. However, taxes on commercial crops, such as cardamom, ginger and oranges, levied at the time of inter-state sale of produce as central sales tax are a major source of revenue.

·   There is no urban land tax, but the state collects some taxes from urban land (excluding private land) in the form of ground rent from different markets. The rate of ground rent was last modified on April 1, 1998. In a medium-term framework, the state needs to introduce an agricultural income tax with a generous threshold level, and an urban land tax.

·    Stamp duty is 1 per cent of consideration value and registration fee is 2 per cent of consideration value. While these have been recently revised, they are still far below national norms. The Committee of State Finance Ministers (NIPFP, 1996) recommended a maximum rate of around 8 per cent, to be eventually reduced to 6 per cent. The maximum rates of stamp duty on conveyance (consideration value) for some states are given in table 3.1.

Table 3. 1: Maximum Rate of Basic Stamp Duty on Conveyance            

Source: Sen, Tapas (1999), Reform of Stamp Duty Administration in Orissa, mimeograph, NIPFP, New Delhi.

·   The state has taken steps to implement uniform floor sales tax rates of 4, 8, and 12 per cent and the upper and lower rates of zero and 20 per cent, recommended at the Chief Ministers' Conference on November 16, 1999. The Sales Tax Act (1983) has been modified by the promulgation of the Sikkim Sales Tax (Amendment) Ordinance, 2000. The Ordinance was followed by a Notification dated January 17, 2000 detailing the sales tax rates of the listed items.

It should focus next on overhauling the tax administration. There should be a gradual move towards computerisation of data collection, including assessment, scrutiny and audit. The four check-posts to the state should also be computerised to facilitate cross-checking of information to prevent any leakage of revenue.

·   Revenues from motor vehicle taxes collected under the Sikkim Motor Vehicles (Taxation) Act, 1982 constitute only 4.6 per cent of own-tax revenue compared to 8.2 per cent for all states (Sen, 1998). Sikkim does not levy road tolls or entry taxes on passengers and goods, and could consider introducing these in the medium term.

·   All enlisted contractors are now under the purview of “works contract” under the State Sales Tax Act and they now are liable to pay sales tax of 2 per cent, which will be deducted at source from their gross bill amounts. However, the state has so far not levied any tax on professionals, which is an important revenue source in some states.

·   Sikkim does not accept its share of Central income tax because the Sikkim State Income Tax Manual, 1948 is in operation in the state, which implies that the provisions of the Income Tax Act (Central Act) 1961 have yet to be implemented in the state. The outcome is that the state government accepts the state's share of Union excise duty, but not its share of income tax from the centre. Table 3.2 shows this amount along with the collection of income tax levied under the state laws.

Table 3. 2: Sikkim's Share of Union Income Tax and Tax Collected Under State Laws

                (Rs. crore)

Notes: 1. The difference of Rs 7.84 crore from the refund of income tax will be paid in monthly instalments of Rs 2 crore from December, 1999.

2. The difference of Rs 9.57 crore which was released on account of Voluntary Disclosure of Income Scheme has been treated as non-Plan grants-in-aid.

Sources: Government of Sikkim, Finance Accounts (various issues) and Annual Financial Statement (Budget) of the Government of Sikkim, 1999-2000.

·   User charges are low, and even these low charges are usually not recovered. User charges should be increased, new areas should come under the net and the government should take firm measures to recover unpaid dues. An increase in user charges will improve accountability and the quality of goods and services provided. Some areas in education, health and transport are potentially good sources of non-tax revenue: for example, tuition fees could be charged at the secondary and higher school levels and parking fees could be introduced in Gangtok and other major towns. Apart from enhancing the exchequer, the former measure will inculcate a sense of responsibility and participation among the parents.

There are some goods and services that the government provides free to all state residents. It would be better off gradually phasing out the blanket provision of these and directing subsidies to only people below the poverty line, after they have been properly identified.