Bengaluru; As the budget year 2024-25 approaches its conclusion, the Karnataka state government finds itself grappling with significant financial challenges. Amid the strain of five major welfare guarantees, the government has struggled to meet its own tax collection targets as outlined in the budget. This year, the state has seen a pronounced shortfall in its revenue collection, prompting a revision of the originally set targets.
The situation is not entirely unexpected; similar patterns were observed in the previous financial year. Despite the ambitious targets set forth in last year’s budget, the government failed to achieve its expected tax collection. This led to a subsequent revision of those targets as reality set in, highlighting the discrepancies between projected revenue and actual collection.
In the current budget year, the target for its own revenue tax collection was ambitiously set. However, as the year draws to a close, it has become evident that these targets are unlikely to be met. For instance, the budget for 2023-24 marked a projected tax collection of approximately Rs 1,89,893 crore for the 2024-25 financial year, which translates to a monthly target of around Rs 15,824 crore. Unfortunately, by February, the state had collected only Rs 1,57,108 crore, averaging a monthly collection of Rs 14,282 crore. This points to a shortfall of about Rs 1,500 crore every month between the budget expectations and the actual collection.
To put these figures into perspective, the state should have collected around Rs 1,74,064 crore by February to stay on track with its projections. However, the reality has reflected a deficit of Rs 16,956 crore against the budget target for the first eleven months of fiscal operations. Thus far, the state has achieved only 82.74% of the budgeted tax collection, a slight decline compared to the 83.88% completion rate recorded in the previous financial year.
The comparative analysis shows a worrying trend: in the last budget year, a target of Rs 1,73,302 crore was set, and by February, the state had managed to collect Rs 1,45,359 crore, falling short by Rs 13,502 crore. This year, the decline seems even more pronounced, indicating that the own tax collection rate has decreased further.
As we look at the numbers, a staggering Rs 32,785 crore needs to be collected in March alone to meet the budget target, a feat that seems unrealistic given current collection trends. If the state manages to achieve a similar collection of about Rs 14,300 crore in March as has been typical, an annual budget shortfall of more than Rs 18,000 crore in own tax collection will still remain.
Historically, the government has not been able to collect the anticipated amount in previous budgets and has faced considerable setbacks. Last year’s shortfall of Rs 13,000 crore gave way to even more ambitious targets for the 2024-25 fiscal year, which have now proven to be overly optimistic.
Specific Tax Collection Insights
The breakdown of various revenue streams further illustrates the challenges faced:
1. Commercial Tax Collection:For the year 2024-25, the government established an annual target of Rs 1,10,000 crore for commercial tax collection, which breaks down to a monthly target of Rs 9,167 crore. However, the cumulative collection between April and February amounted to only Rs 92,934 crore, reflecting a deficit of Rs 7,903 crore in commercial tax revenue.
2. Excise Tax Collection:The original budget for annual excise tax collection was set at Rs 38,525 crore, with a monthly collection target of Rs 3,210 crore. The excise tax collection for the first eleven months was only Rs 32,381 crore, falling short by Rs 2,933 crore, indicating a concerning trend in revenue from this source.
3. Motor Vehicle Tax: A target of Rs 13,000 crore was set for the annual motor vehicle tax collection. The government expected to collect Rs 1,083 crore on a monthly basis, but the total for the first eleven months was merely Rs 10,720 crore, resulting in a shortfall of Rs 1,196 crore.
4. Stamp and Registration Fees:The budget aimed for an annual collection of Rs 26,000 crore. The performance in the first eleven months showed that only Rs 20,151 crore was collected, leading to a drop of approximately Rs 3,682 crore from anticipated levels.
5. Other Taxes: The estimated target for other taxes, including capital gains and mining fees, was Rs 2,368 crore. Yet, only Rs 921 crore was realized, marking a decline of Rs 1,249 crore in collection, with a noted decrease of about 25 per cent compared to previous years.
Given these figures, the state government has been forced to revise its revenue expectations downward as tax collection fell short of the original budget targets. The updated projections indicate a revised commercial tax collection of approximately Rs 1,05,000 crore, which is less than the previously anticipated Rs 1,10,000 crore by March’s end.
Further adjustments in the revised estimates predict that total excise tax collection could reach Rs 36,500 crore (down from Rs 38,525 crore), while stamp and registration fee revenue is expected to be around Rs 24,000 crore (originally set at Rs 26,000 crore). Similarly, motor vehicle tax collections are now expected to total approximately Rs 12,500 crore, reduced from an original target of Rs 13,000 crore.
Measures for Improvement
In light of the diminishing tax collection, the Commercial Tax Department’s offices are set to operate even on public holidays to maximize revenues. The Commissioner has mandated that all commercial tax offices remain open on March 30 and 31—traditionally days off—to encourage last-minute tax payments.
Finance Department Secretary Dr PC Jaffer acknowledged the difficulties the state faces in achieving its budget targets, stating that the high levels of mandatory electronic accounting have added to the complexities of tax collection. He expressed concerns over declines in several key tax areas, attributing some drops in excise collection to rising liquor prices and overall reductions in economic activity affecting revenues statewide.
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