Madhya Pradesh Tax and economic reforms | Course for MPPSC Preparation - MPPSC (Madhya Pradesh) PDF Download

Madhya Pradesh  Tax and Economic reforms

The economic liberalization in India , initiated in 1991, of the country’s economic policies, with the goal of making the economy more market and service-oriented and expanding the role of private and foreign investment. Specific changes include a reduction in import tariffs, deregulation of markets, reduction of taxes, and greater foreign investment. Liberalization has been credited by its proponents for the high economic growth recorded by the country in the 1990s and 2000s. And it has positive impact on the state of Madhya Pradesh as seen from the following data,

India’s GDP has increased thereafter and also  the GDSP of state as Rate of Growth of Gross State Domestic Product (GSDP) of Madhya Pradesh

• During 1980-81 to 1990-91      4.56 %
• During 1990-91 to 1998-99      5.9  %

Madhya Pradesh which was included in the BIMARU states (Bihar, Madhya Pradesh Rajasthan and Uttar Pradesh) has performed reasonably well.  Madhya Pradesh  which had grown more slowly than the average in the 1980s, accelerated significantly in the 1990s.

Madhya Pradesh Budget Analysis 2017-18

• The Madhya Pradesh Finance Minister, Mr. Jayant Mallayya, presented the Budget for Madhya Pradesh for the financial year 2017-18 on March 1, 2017.

Budget Highlights

• The Gross State Domestic Product of Madhya Pradesh at current prices for 2017-18 is estimated to be Rs. 7,35,246 crore. This is 13.9% higher than the revised estimate for 2016-17.
• Total expenditure for 2017-18 is estimated to be Rs 1,69,954 crore, an 8.5% increase over the revised estimate of 2016-17. The revised estimate for 2016-17 is Rs 2,083 crore lower than the budgeted target.
• Total receipts (excluding borrowings) for 2017-18 are estimated to be 11.4% higher, at Rs 1,45,111 crore. In 2016-17, they fell short of the budgeted target by Rs 4,111 crore.
• Revenue surplus for the next financial year is targeted at Rs 4,596 crore, or 0.63% of the Gross State Domestic Product (GSDP). Fiscal deficit is targeted at Rs 25,689 crore (3.49% of GSDP).
• The Fiscal Responsibility and Budget Management Act, 2005 mandates a fiscal deficit ceiling of 3.5% of GSDP. Primary deficit is targeted at Rs 14,148 crore (1.9% of GSDP).
• Rs 33,564 crore has been allocated for the Agriculture Budget in 2017-18. Rs 400 crore has been allocated to  the Rashtriya Krishi Vikas Yojana, and Rs 305 crore has been allocated to the National Food Security Mission.
• Allocations to the departments of Urban Administration and Development, School Education and Rural  Development increased by 22%, 10% and 7% respectively, over the revised estimates of 2016-17. However, allocation to the Department of Energy has decreased by 21%.

Madhya Pradesh total tax revenue

Total tax revenue of Madhya Pradesh is estimated to be Rs 50,295 crore in 2017-18

• Tax Revenue: Among all sources of Tax revenue, sales tax is the largest component. Sales tax is levied on the sale of goods in the state is expected to generate Rs 25,910 crore (52% of tax revenue). The state is expected to generate Rs 8,600 crore (17%) through levy of state excise duty on the production of various forms of alcohol. In addition, revenue will be generated through stamp duties, registration charges on real estate transactions, electricity duties, among others.
• Non Tax Revenue: Madhya Pradesh has budgeted to generate Rs 11,680 crore through non-tax sources. In 2016-17, the state expected to generate a revenue of Rs 4,143 crore from education (such as licensing and  fees); however, the revised estimate is Rs 1,038 crore lower than the budgeted estimate. In 2017-18, Rs 3,310 crore is estimated to be generated from education.
• Rs 3,700 crore is estimated to be generated from mining in 2017-18, compared to Rs 3,100 crore as per the revised estimate of 2016-17 (19% increase).

Deficits Debts and Targets of Madhya Pradesh for 2017-18

• The Madhya Pradesh Fiscal Responsibility and Budget Management (FRBM) Act, 2005 provides annual targets to progressively reduce the outstanding debt, revenue deficit and fiscal deficit of the state government.
• Revenue deficit: It is the excess of revenue expenditure over revenue receipts. A revenue deficit implies that the recurring receipts of the government are unable to cover its recurring expenditures. The revenue surplus is expected at Rs 4,596 crore (or 0.63% of state GDP) in 2017-18. This is better than the target of eliminating revenue deficit prescribed by the state’s FRBM Act and by the 14th Finance Commission.
• Fiscal deficit: It is the excess of total expenditure over total receipts. This gap is filled by borrowings by the government, and leads to an increase in total liabilities of the government. In 2016-17, fiscal deficit increased from the budgeted target of Rs 24,914 crore to Rs 29,899 crore (4.63% of GSDP). This increase includes Rs 7,361 crore taken up as market borrowings on account of the UDAY scheme. The revised estimate in 2016-17 exceeded the 3.0% limit under the 14th Finance Commission, and the 3.5% limit under the FRBM Act. In 2017-18, fiscal deficit is estimated at Rs 25,689 crore (3.49% of GSDP).
• Outstanding Liabilities: It is the accumulation of borrowings over the years. In 2017-18, the outstanding liabilities are expected at 24.9% of GSDP, an increase over the 24.6% as per revised estimates of 2016-17. They are estimated to further increase to 25.8% in 2018-19, 26.3% in 2019-20, and 26.5% in 2020-21. An increase in liabilities over time indicates that the state would be required to pay more in terms of interest payments as well as principle amount repayments over the coming years.

Tax Proposals during 2016-17

• Value Added Tax (VAT): The budget proposes to remove 5% VAT payable on battery operated cars, battery operated rickshaw and battery operated vehicles.Madhya Pradesh Tax and Economic reforms
• Entry Tax: Imposition of 6% Entry tax on goods purchased using e-commerce is proposed.
• Entertainment Tax: Currently a 5 year tax holiday is available to land owners of cinemas and multiplexes. This is proposed to be extended to lease holders.

Goods and Service Tax in Madhya Pradesh

• Goods and Service Tax: The Madhya Pradesh Legislative Assembly on Wednesday unanimously passed the Madhya Pradesh Goods and Services Tax (GST) Bill-2017 as the new tax regime is going to be a game changer for the state of Madhya Pradesh. It will increase  the  revenue of the state that will help in other useful purposes and schemes.
• GST’s benefits to  Less developed states like Madhya Pradesh  get a lift as the current 2% inter-state levy means production is kept within a state. Under the GST national market, this can be dispersed, creating opportunities for others. Investment boost as for many capital goods, input tax credit is not available.
• So overall GST has a positive impact on the state of Madhya Pradesh as it will increase the revenue of the state.