Tax Effort and Taxable Capacity: New Evidence from 14 States in India
25 Pages Posted: 18 Nov 2021
Date Written: November 17, 2021
A proper examination of the states' tax efforts is necessary for the creation of appropriate and reasonable criteria for resource transfers from the center to the states, as well as to encourage states to mobilize resources for development plans in their own sources. In India, most of the studies discuss on how the tax improved, but hardly dealt with how can we still improve from an abysmally low rate of collection. Therefore, the paper discusses on the taxable capacity and tax effort of fourteen non special category states in India. The aggregate regression method was used for estimation of the taxable capacity and tax effort. The data we estimate is the average of the three-year period 2014-15 to 2016-17, the period for which the latest data on the tax revenue and GSDP (2011-12 series) are available. The tax effort analysis highlights that the low-income states (Uttar Pradesh, Bihar, Madhya Pradesh) and southern states (Andhra Pradesh, Karnataka, Kerala and Tamil Nadu) show an aggregate tax effort greater than 100%. Interestingly, high-income states like Haryana, Gujarat, Punjab etc. exhibit low tax effort. An important observation is that aggregate tax effort is largely determined by sales tax effort due to its high weightage in own tax revenue. Those state have done poorer effort in sales tax had performed not so well in their aggregate tax effort.
Keywords: Tax, Taxation, Tax Effort, Taxable Capacity, Tax in India, Public Economics, Non Special Category State in India
JEL Classification: H20, H25, H26, H27, H71, H77
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