Tamil Nadu Tax and Economic Reforms - Tamil Nadu PCS Exam Notes

Tamil Nadu Tax and Economic Reforms:-

Tamil Nadu is among the few states in India to have recognised the importance of manufacturing early on.This is reflected in the higher share that the state enjoys in the overall national mix both in terms of number of factories and the total share of people employed in the manufacturing sector.Manufacturing provides employment, upgrades skills, and has a multiplier effect on the economy that is greater than those that can be generated by the services sector. Industrial activity is concentrated around Chennai.

The southern state has performed better than other states in lowering poverty, improving public health and literacy. The reasons for the relative success of Tamil Nadu lie in extending social policies to cover most of the population. For instance the Public Distribution System, midday meals and public health infrastructure have near universal coverage. In the mid-1990s, rural poverty was greater in Tamil Nadu than in Gujarat. Figures in 1993-94 the proportion of poor people in rural Tamil Nadu was 51.2% while in Gujarat it was 43.3%. By 2011-12, Tamil Nadu reduced rural poverty by 34 percentage points to 15.8% while Gujarat only managed to bring it down 22 percentage points to 21.5%.This put Tamilnaduat 3^rd position in human development Index ranking in 2015.

In the two decades since 1993-94, its literacy rate increased from 67% to 81.1%. The rise in literacy levels among SC/STs was 23 percentage points in Tamil Nadu, which in highest in India in the period.In health indicators too Tamil Nadu is ahead of Gujarat. Infant mortality rate is 22 (per 1000 live births) in Tamil Nadu compared to 41 in Gujarat; the maternal mortality rate is 97 (Tamil Nadu) and 148 (Gujarat); child immunization is 80.9% (Tamil Nadu) and 45.2% (Gujarat); percentage of children who are undernourished in Tamil Nadu stands at 31.1 versus 51.7 in Gujarat. Less well known, but no less significant, is the gradual emergence and consolidation of universalistic social policies in Tamil Nadu. Tamil Nadu, unlike most other states, also has an extensive and network of lively and effective healthcare centres, where people from all social backgrounds can get reasonably good healthcare, free of cost,” Sen and Jean Dreze said in 2011.

Even the Public Distribution System in Tamil Nadu provides rice, sugar, kerosene, cooking oil, pulses and is universal in nature, compared to the targeted PDS in most other states including Gujarat.

Reasons for Tamilnadu development:-

Active social policies constitute an important aspect of this shared experience. This is particularly striking in the vigour of public education, but it also extends to other domains, such as health care, social security and public amenities. Several of the state’s initial (1960) conditions, such as literacy, infant mortality rate (reflecting health status), urbanisation, food crop yields per acre and electricity infrastructure, were better in Tamil Nadu.
The state has typically followed universalistic principles in the provision of essential public services. The basic principle is that facilities such as school education, primary health care, midday meals, electricity connections, ration cards and drinking water should as far as possible be made effectively available to all on a non-discriminatory basis, instead of being ‘targeted’ to specific sections of the population.
These efforts have been greatly facilitated by a functioning and comparatively efficient administration. The governments involved have delivered their services in traditional lines, and there has been little use of recently favoured short-cuts such as the use of parateachers (rather than regular teachers), making conditional cash transfers, or reliance on school vouchers for private schools (rather than building government schools). Tamil Nadu’s surge is recent: for instance, per-capita net state domestic product (NSDP), urbanisation, electricity installed capacity, policefiring incidents etc.
Dealing with social inequality has also been an important part of these shared experiences. In each case, the historical burden of social inequality has been significantly reduced in one way or another. In Kerala and Tamil Nadu, principles of equal citizenship and universal entitlements were forged through sustained social reform movements as well as fierce struggles for equality on the part of underprivileged groups – especially Dalits.
These experiences of rapid social progress are not just a reflection of constructive state policies but also of people’s active involvement in democratic politics. The social movements that fought traditional inequalities (particularly caste inequalities) are part of this larger pattern. These social advances, the spread of education, and the operation of democratic institutions (with all their imperfections) enabled people – men and women – to have a say in public policy and social arrangements, in a way that has yet to happen in many other states.

In 1991, the Indian economy plunged into a macroeconomic crisis, which led to the start of economic liberalisation and created favourable conditions for private sector investment, both domestic and foreign. Thus, the policy shift was national, with all states free to take advantage of the opportunities it offered, in the context of the federal framework. Based on data from the department of industrial policy and promotion (Dipp), during 2000-06, Tamil Nadu attracted foreign investment proposals worth 8,500 crore, one of highest among Indian states because Tamil Nadu was more prepared with the enabling conditions that included infrastructure for economic growth, while states that failed to invest lagged behind.

Economic growth in Tamil Nadu were propelled further by Jayalalithaa during 1991-96. She is to be viewed as an actor, along with others, who facilitated bringing about rapid economic surge in Tamil Nadu.

Recent Reform:-

E-District Services
Certificates e-Filing of Monthly VAT Returns for Top Assesses
e-Payment facility for Tax remittance
e-Request for Refund Claims (Form-W)
e-Request for Saleable form E-Services of Land Records
E-Tendering System

The first industrial estate zones of the country came up during the 1960s in Tamilnadu. Further, Development of port facilities and state highways that connect hinterlands has ensured development even across districts. The mid-day meal scheme, preventive healthcare policy, liberalisation of higher education and the much controversial reservations in education and government jobs have all helped build a skilled, educated labour force which forms a corner stone of the growth story.

Structural and policy bottlenecks:-

The hidden costs in land registration add to the already burgeoning land costs. “Ideally state should pool in land resources and create a land bank as it did in early 2000s. Set up a time-bound investment flow for projects and monitor them so that the promises made are kept
Lack of flexibility in hiring labour for temporary work and challenges associated with complying with the numerous provisions of the Factories Act, 1948 are the two biggest constraints faced by businesses across sectors.
Add to this is the rising trade unionism.

Way forward:-

With problems defined, the state should work at getting its house back in order. Experts recommend that the state stick to its core strengths of auto, leather, textiles and IT- ITES and keep improving efficiencies so that commerce can flourish rather than aim for new and unknown sectors. The Madras Chamber of Commerce and Industry has recommended introduction of a single business act for speedy processing of clearances required while starting and running a business. The Act will promote combined application forms, self-certification, deemed approvals and introduction of credible time-limits for processing of applications and all the basic approvals relating to starting and running a business. The chamber has also sought simplification of labour laws including legalizing fixed-term employment and work on setting up common effluent treatment plants for the textile business.The IT industry wants it to be classified under the Essential Services Act like in Karnataka, Kerala and Andhra Pradesh.

TAX REFORM IN TAMILNADU:-

Constitution of India in Part seven define tax domain of central and state government. Following are taxes falls under state jurisdiction:-

Sales Tax/VAT-

Sales tax is levied on the sale of movable goods. Most of the Indian States have replaced Sales tax with a new Value Added Tax (VAT) with effect from April 01, 2005. July 22, 2006: Finance Minister of Tamil Nadu announced in the state assembly about the introduction of VAT system October 28, 2006: VAT Act was published in Tamil Nadu Gazette and introduced, effective from January 1, 2007.

Luxury tax- The Govt. tapped the source of revenue from Hospitality Industry with the introduction of Luxury Tax w.e.f from November 01, 1996 on the luxuries provided in various hotels, lodging houses, clubs etc. This tax introduced in state by TAMIL NADU TAX ON LUXURIES ACT, 1981.
Stamp Duty– It is a tax equally borne by both the parties which the purchaser/transferee has to pay in case of property exchange in the absence of an agreement. Tamilnadu in 2012, amended The Indian Stamp (Tamil Nadu Amendment) Act 2012, aimed at controlling the evasion of stamp duty and making the registration of power of attorney documents relating to immovable properties compulsory and provides for levy of 1 per cent stamp duty on construction agreements relating to buildings on undivided share of land.
State Excise duty- State Excise is levied by State Government and is charged only on goods like liquor which are within the state subject. In Tamilnadu it imposed under Tamilnadu prohibition Act,1939. Recently The Bill, called the Tamilnadu Prohibition (Amendment) Act, 2014, was introduced by Tamil Nadu assembly and it sought to enhance the maximum rate of excise duty in respect of ordinary, medium and premium brands to Rs 250, Rs 300 and Rs 500 respectively per ltr.
Entertainment Tax- Entertainment tax is the tax paid by the entertainment industry in India. The tax is applicable for entertainment shows, sponsored private festivals, movie tickets, video game arcades, and amusement parks. Recently The Tamil Nadu government introduced a bill to repeal the Tamil Nadu Entertainments Tax Act 1939 as the tax is subsumed in goods and services tax (GST) introduced in 2017. Tamil Nadu has recently levied an additional 30 percent entertainment tax along with the 28 percent GST rate.A great tussle between film industry and state government on increased tax on movie tickets took place (additional 30% on GST) and later government agreed for additional 8% tax to solve the crisis in state’s entertainment industry.
Professional Tax– Professional Tax is levied on profession, trade calling and employment by the Municipal Council of a state. In Tamilnadu it was levied by introducing The TamilnaduPanchayati Act,1994. Gently all these indirect tax have been subsumed in goods and service tax (GST).Under the new system, the state government has minimal say in future tax reform. All the decision related to text structure will be taken by GST Council which is a federal body.

Apart from these some other taxes like Octori, Property tax, Cesses of state tax subject, local levy and local body (Panchayat and Municipal) taxes also falls under state subject.

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