Kerala Finance Minister Thomas Issac will present the Budget on February 7, even as the state witnesses an unprecedented fiscal crisis.
In an interview to TNM, just before the budget, the Finance Minister candidly admitted that there was little scope for additional resource mobilization, as the state's main source of income - sales tax- has been subsumed into GST.
Isaac said that the budget hence has to play around with income from land transactions or property tax.
"I think one has to search for methods to collect a portion of capital gains from land prices particularly when government undertakes big projects which cause very significant increase in land prices. It’s only right that government can have a share of capital gains. But this has not been tried earlier, " he said.
He feels that excise rates and tax on petroleum are already quite high in Kerala, and therefore he won't be hiking them any further.
"So stamp duty on land and registration fee are the only source of income. There is motor vehicle tax, but if we increase it further, people won’t register vehicles here. So the only possibility is with immovable properties- there is one term return from the revenue authorities and there is stamp duty for transactions- one has to really innovate on this," he said.
The Minister said that he has refused to reduce the fair value of land though there was a general tendency to do the same. "There is always a gap between price shown in the documents and the actual price, we have introduced a system of fair values but fair values are lesser than one third of the usual market price, hence there has always been room for increasing the fair value," he says.
The cut in the borrowing limit for the state, not getting GST compensation on time and lack of central funds to deal with damage done by ravaging floods has worsened the fiscal crisis. Issac says that despite the crisis, various steps have been taken for a major infrastructure push in Kerala through special purpose vehicles with government guarantee.
According to Isaac, there are not many untapped areas for fund generation. A sector that still has potential and can bring value addition is mineral and sand mining, but the Finance Minister says that the environmental implications are too large to ignore.
The budget, therefore, will focus on knowledge industries and service industries and value addition in agricultural commodities.
"An analysis of Gross Domestic Product of the state in the past three years shows that share of industries in the GDP has been rising and that is very important. And when looked into carefully, these are medium and small scale industries, and IT sector, hence we will focus on these sectors to accelerate growth," he said.
There are programmes based on which large mobilization of fund can take place. A major component of the budget announcements will focus on that, says Issac.
Service charges will not be hiked as it would lead to inflation, he adds. "Kerala is an economy that widely believes in social system of servicing and there should be budget provision for that," he added.