By: Pinki Ramaul
Himachal Pradesh government imposed entry tax under the ‘Himachal Pradesh Tax on Entry of Goods into Local Area Act, 2010’ in the current financial year w.e.f. April 1, 2010. Keeping in view the unfavourable recommendations of the Thirteenth Finance Commission, it was necessary for Himachal Pradesh to explore additional sources of revenue generation. Entry tax can be a buoyant source of tax revenue. But from the point of view of liberal economic principles, in an era of globalisation and free trade under World Trade Organisation, such fragmentation of domestic Indian market will only cause distortions in the economy. Thus there is an urgent need to integrate the entire Indian economy. The proposal to impose Goods and Services Tax from the next fiscal is a step towards integration of the Indian market.
Despite the trade-off between the requirement of revenue generation and economic principles, entry tax has also been imposed by other states like Punjab, Rajasthan ,Karnataka and Jammu & Kashmir. However, Himachal Pradesh had initially imposed the tax only on 7 items while in comparison Rajasthan has imposed tax on 50 items since1999 and Karnataka has imposed entry tax on 131 items since 1979. Thus there is a strong case to bring more items under entry tax in Himachal Pradesh. After registering a rise in tax collections after enacting the Himachal Pradesh Tax on Entry of Goods into Local Area Act, 2010, the state government amended the Act on October 14, 2010 by promulgation of Himachal Pradesh Tax on Entry of Goods into Local Area (Amendment) Ordinance, 2010 (H P Ordinance No. 8 of 2010) to amend the Act. The amendments are expected to be made part of the Act during the Winter Session of the Assembly. This amendment added six more categories in Schedule II appended to the said Act. Thus, the number of items on which entry tax is applicable has been increased to 13. This is expected to increase the revenue by way of entry tax.
Entry tax revenue receipts are expected to be a major contributor in the tax collection target for the current fiscal year. The tax on motor vehicles purchased from any place outside the state for use in the state is motivated by the virtual loss of tax to the state exchequer due to purchase of a large number of goods vehicles – trucks, pick-up and utility vehicles and buses from other states – for use in Himachal. The other categories that would attract entry tax on transit of commodity from outside the state include all types of advertisements and publicity material like hoardings (five percent); waste material and scraps of all types (four percent); corrugated boxes and mono cartons (five percent) and LPG cylinders imported from outside the state for commercial use (five percent).
Three percent entry tax has also been proposed on all items purchased by the government departments, boards and corporations for consumption, while there is already a five percent tax on items purchased by them for execution of work contracts, including hydro power, telecommunication and thermal power. However, acceding to the demand of the steel industry, the state government again amended the Schedule II on October 29, 2010 and granted partial relaxation and scaled down the entry tax on scrap and waste material from four percent to two percent. However, keeping in view the high cost of non-ferrous metal scrap, one percent entry tax has been levied. The entry tax on LPG cylinders imported from outside the state for commercial use was increased from 5 per cent to 12 per cent. The steel industry has complained that it is forced to bear the maximum brunt of the lopsided tax structure while many other sectors, including pharmaceutical industry, paid very low taxes. However, it is worthwhile to mention here that the steel and alloy industry (specially recycling of scrap) is considered to be the most polluting industry all over the world with high consumption of power. Thus, according to the ‘Polluter Pays Principle’ this scrap recycling industry is, and must be, taxed most heavily. Even then, the taxation department must carefully analyze the arguments of steel industry on merit and study the existing tax structure and tax evasion on various counts and explore the possibility of adding more items under entry tax. Increasing the tax base of entry tax will ensure revenue generation and remove distortions in the economy of the state. The recent taxation measures reflect the state government’s resolve to formulate policies guided by hard-core economics rather than mere populist politics. The Himachalis hope that the state will tide over the present fiscal crisis successfully.
(The writer is principal, Trivenee School of Excellence, Paonta Sahib)