Tax base, Pros and Cons of Special Category status in Himachal Pradesh

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Tax base, Pros and Cons of Special Category status in Himachal Pradesh

Taxation

The Department of Excise and Taxation is a major revenue earning department of the Government of Himachal Pradesh. During the year 2016-17 revenue collected under VAT was `4,381.91 crore, which is 71 per cent of total revenue collected i.e. `6,171.00 crore. During the year 2016-17 revenue of `1,307.87 crore, has been collected under the head 0039- State Excise against the target of `1,351.49 crore which was 21.19 per cent of total revenue collection and remaining 7.81 per cent collection was under the HP Passenger and Goods Tax Act, HP Luxury Tax Act, HP Certain Goods Carried by Road Tax Act, HP Entertainment Tax Act and H.P. Toll Tax Act.

The Government has fixed a target of `145.27 crore in respect of Head of Account 0042-PGT and `409.14 crore in respect of OTD-0045 for the financial year 2017-18 which is 9 percent higher than the previous financial year 2016-17.

Special status to himachal Pradesh

There are twenty-eight states and seven union territories in India. Some of the states are given some benefits by the central government as they fall under the special category states. In 1969 while devising formula for sharing central assistance among states, the Fifth Finance Commission acting in line to the Gadgil formula, had accorded special status to three states on the basis of harsh terrain, backwardness and social problems prevailing in these states. As per Gadgil formula a special category state gets preferential treatment in federal assistance and tax breaks. The special-category states get significant excise duty concessions, and thus help these states attract large number of industrial units to establish manufacturing facilities within their territory. Now many other states have also been categorized under this term like:- Arunachal Pradesh, Assam, Himachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland etc.

 

 

Benefits under Special category status

  • The central government allocates 30 per cent of its plan expenditure to State while the remaining 70 per cent goes to other States.
  • In the case of the centrally-sponsored schemes (CSS) and external aid, special category States get 90 per cent as grant and 10 per cent as loan. For general category States, it is 30 per cent grant and 70 per cent loan.
  • Unspent funds don’t lapse and get carried forward in the case of special category States while they lapse in the case of non-special category States.
  • The central government offers a host of tax benefits for the new industrial units set up in the special category States. They include capital investment subsidy, income tax exemption for five years, interest subsidy, comprehensive insurance subsidy, central excise duty exemption and transport subsidy.
  • These tax exemptions and investment subsidies are the main reason why industrialists are flocking to the special category States and setting up industrial units even in hilly areas.

Cons of special status to himachal Pradesh

Several changes over the years, more particularly those introduced in the Union Budget 2015-16, have resulted in considerable dilution of benefits to the ‘Special Category States’. The loan component of normal plan assistance was dispensed with in 2005-06 and since then such assistance is being given only in the form of grants to all States, including those in the general category. Following this, the share of ‘Special Category States’ in total normal central assistance has been around 56 per cent from 2005-06 onwards. But the share of normal central assistance in total plan assistance, which was the predominant channel of central plan assistance to States, had come down to about 15 per cent with the proliferation of Centrally Sponsored Schemes (CSS), with resultant dilution of the benefit of untied grants to States. Following the increase in tax devolution to States from 32 to 42 per cent of divisible pool of central taxes, the Centre has dispensed with normal plan assistance, special central assistance and special plan assistance from 2015-16 onwards.

There are very few externally aided projects in the ‘Special Category States’. The Union Budget 2015-16 has drastically reduced the allocations under AIBP from Rs.8,992 crore in 2014-15 to just Rs.1,000 crore. AIBP is now included in the list of schemes to be run with higher matching contribution by States.

The ‘Special Category’ status is not so special anymore following the above changes . The only attraction that remains is the benefit of assistance for externally aided projects (90 per cent grant). But even this will be of limited benefit if any new state is accorded special category for a limited period of five years or so as disbursal of external assistance cannot be substantial in such a limited period. The benefit of lower matching contribution for ‘Special Category States’ for CSS is unlikely to be substantial with the reduction of assistance to State plans by over 40 per cent to Rs.1,96,743 crore in 2015-16.

 

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