INTERVIEW | Reorganize the tax system and fight against gold smuggling: VD Satheesan

Express news service

THIRUVANANTHAPURAM: Opposition leader VD Satheesan is the most authentic voice of the UDF camp to talk about state finances. During the tenure of the previous Pinarayi Vijayan government and the 2006-11 VS Achuthanandan government, Satheesan led the opposition attack on then-finance minister TM Thomas Isaac. In 2019, Satheesan led the UDF subcommittee that released a white paper on Kerala’s finances, which raised serious concerns about rising public debt and declining tax revenues.

Extracts:

Q. How do you see the state’s overall financial situation?
It’s no secret that our finances are in the doldrums. Several factors have contributed. The white paper we prepared in 2019 sounded very cautious. The situation has worsened beyond that now. In 2016, the white paper published by then-finance minister Thomas Isaac accused the previous government of increasing the state’s debt burden.

Public debt almost doubled in the five years of the previous LDF government. This year, according to budget estimates, Kerala’s outstanding debt will exceed 3.27 lakh crore. The state is forced to use most of its resources for revenue spending and debt service. This affects the allocation of funds to local self-government institutions and leads to cuts in plans.

Illus | Amit Bandré

Q. Do you think the GST regime has seriously affected Kerala and affected our tax collection?
The tax administration should understand the nuances of the VAT and GST regimes and use proper methods to collect tax. VAT is a tax levied at the end of production while GST is a tax levied at the end of consumption. While the VAT has given a benefit to producing states, the GST is beneficial to consuming states. This means, in theory, that Kerala should have been the biggest recipient of the GST. The reason we failed is because of the archaic tax administration system. We still maintain the administration of the VAT era to collect the GST. Most of the other states have overhauled their tax administration.

Q. Are tax collection issues the only problem with the GST?
No. There are inherent problems with the GST. But many of them are beyond the control of the state. There are a lot of procedures for filing returns and things like that. These need to be simplified. The ongoing debate on the rationalization of rates within the group of ministers should soon be concluded. This can give more advantages to states.

Q. Have you noticed that the collection of the tax on gold has fallen to a third after the GST?
Only strong action can help the state levy a tax on gold. It is a fact that there is large scale gold smuggling, and being the largest gold market, a good chunk of the smuggled gold reaches here. There are illegal manufacturing units where smuggled gold is converted into jewelry and sold in the market. The GST empowers tax officials to search these places and make seizures. This is what the central GST does. But the state’s GST department maintains it has no authority to do so.

Q. Are you worried about the increase in public debt? Can Kerala continue like this?
The real question is how you use the borrowed money. If the borrowed money is used for asset creation, that won’t be much of a problem. But our recent borrowings are all intended to cover revenue expenses and to pay interest on previous borrowings. This is a bad trend. In addition, the outstanding debt figure in the budget does not include KIIFB debt.

Q. Salary and pension expenses are too high in Kerala. There was a salary review in April, despite it being a pandemic year. Was it necessary?
The government has an obligation to provide a living wage to its employees. The periodic review of wages is the employee’s right. But the government can still exercise discretion in this matter. What the remuneration committee submits is only a recommendation. Being a pandemic year, the government could have postponed the salary review by giving employees confidence. But they wanted to do it as the elections approached.

Q. Do you agree with the proposal to further exploit non-tax sources of income?
I don’t approve of it. If you raise the fair price of land by eyeing more stamp duty, there will be a sudden reduction in the number of transactions. Being a period of recession, the government should initiate measures that will stimulate economic activities. For lotteries, instead of increasing the price, there should be measures such as making the prize system more attractive.

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