Studies Completed

Since inception, the Foundation has completed the following comprehensive research studies:

1. Reorganizing Tax Department for VAT Administration: A Study of North-Eastern States

The introduction of state-VAT has been one of the most remarkable achievements in the arena of States’ tax reforms. This has helped the States to rationalize the then existing sales taxes in the States. Notwithstanding this landmark-switchover to VAT, organizational and procedural reforms of State taxes have not kept pace with it. As of now it leaves much to be desired. More importantly, both the organization for tax administration and operations of VAT has not been rationalized from the point of administrative cost of the department as well as the cost of collection of the taxpayers. Transparency in procedures and client services also leave much to be desired.

Deficiency in VAT administration is primarily due to the fact that presently the department is based on case specialization, against functional specialization. It is accordingly divided into divisions and circles, which are primarily activity units. Also, the individual officer is responsible for all activities related to a dealer. Hence, there is one-to-one link between the officer and the dealer in the system. This study presents a scheme of re-engineering of the tax department on the basis of functions.

The overall coverage of the study is confined to two of the North-Eastern States, viz. Assam and Meghalaya-- Assam, representing a better off State among the other States in the region; and Meghalaya representing a typical North-Eastern State.

The study was sponsored by the Planning Commission.

 

2. Revamping State Excise Duty: Issues in Policy and Governance 

As a revenue source, State Excise Duty (SED) is the second most important levy after State-VAT. It is levied by the States on production and consumption of spirituous beverages of which alcoholic liquor constitutes an important component. The system of auction or licensing regulates the sale and consumption of alcohol within a stipulated framework. The tax base of SED has narrowed down over the years. Keeping this in view, this study aims at analyzing the revenue productivity, structure rationality and administrative expediency of the tax. Also, it presents policy imperatives for reforms. With a view to analyzing the issues in governance of this tax under a broader framework, this study covers a sample of two States, viz. Maharashtra and Rajasthan. Maharashtra is selected as one among the few States showing a better performance in terms of introducing reforms in tax policies and administration. Rajasthan is drawn from the group of States that need to carry out further reforms. The study is sponsored by the ICSSR.

3. Preparation of the Fourteenth Finance Commission Memorandum for the Government of Meghalaya 

This study is an attempt to bring together all the aspects of public finance in the State of Meghalaya. It was undertaken to prepare a State Memorandum on behalf of the Government of Meghalaya for onward submission to the Fourteenth Finance Commission. It included all aspects of tax and non-tax revenue, State expenditure, public debt etc. for the past, current and projected period. The overall work was submitted in five different volumes, viz. Memorandum to the Fourteenth Finance Commission; Financial Position of the State (State Formats); Subsidiary Points (Notes on Topics- State); Memorandum and Subsidiary Points on Local Bodies; and Up-gradation Grant, Special Problems and Specific Needs of the State. The study was sponsored by the Government of Meghalaya.

 

4. Measuring Performance of State-VAT: A Case Study of Organizational and Procedural Aspects of Governance of State-VAT in Indian States (March 2012)

This study attempted at analysing administration of state-VAT and to measure its performance. In doing so, it reviewed the outcome of tax administration in relation to its organization and operations. The analysis related to 17 major States leaving aside 11 special category States. The major States have been further classified into high income, middle income and low income States in the study. For a detailed analysis of organization and procedures this study has selected five states, viz. Karnataka, Maharashtra, Bihar, Madhya Pradesh and Uttar Pradesh. Karnataka and Maharashtra are taken as the States that factor for good performance, way ahead of other States and has made some reforms in policies and administration of the tax. Bihar, Madhya Pradesh and Uttar Pradesh are drawn from the group of States that need to carry out further reforms in administration of this tax. Also, these are the States that historically have had different economic backgrounds and have also been recently reorganized to form three new States. This study was sponsored by the FPEPR.

 

5. Road User Taxation in India: An Analysis of Issues in Tax Policy and Governance (October 2010)

Given the status of road transport in India, indicating increase in the number of registered vehicles causing their concentration, and also stress on the available meager infrastructure of highways and other motorable routes, this study is a comprehensive work on taxation of transport vehicles. The study analysed the fiscal importance of taxes on motor vehicles; evaluated the structure of all transport taxes levied by the Central, State and Local governments on purchase and use of vehicles in terms of cost for the users (especially for the trade and industry to have least cost and efficiency in the national and international trade and commerce); presented an estimate of combined incidence of all the taxes on road transport by taking into account a few select categories of vehicles; and recommended a rational system of taxation for the transport industry. The study puts forth reforms for rational and efficient user charges and sets modalities for the governance of these taxes to achieve higher growth in the overall road transport sector which in turn will impact trade and industry in the country. This study was sponsored by the Planning Commission, Government of India, New Delhi.

6. Tax Reforms in India: A Road Map for Second Generation Reforms –(July 2010)

The study aimed at analysing comprehensively the tax system of the Central and State Governments in India. In doing so, it analyses trends in the fiscal contribution of each and every tax imposed by the Centre and the States since 1991-92 and examines the structure as well as operations of direct and indirect taxes. In this process, it reviews the recommendations of various Committees related to all the taxes at the Centre and at the State level. Finally, the study puts forth recommendations for further reforms in the overall tax system both in the short as well as in the long run. The study was sponsored by the Indian Council of Social Science Research (ICSSR), New Delhi.

7. Revenue Implications of Introducing Goods and Services Tax in India (January 2010)

The study estimated revenue of both the Centre and the States when the Goods and Services Tax (GST) get introduced in India replacing the existing CenVAT and service tax at the Centre level and State-VAT at the State level. It made projections of revenue from the proposed tax for the two tiers of Governments for the period of award of the Thirteenth Finance Commission (TFC), viz. 2010-11 to 2014-15. In addition, the coverage of the study broadly included (a) the structure of taxes on commodities and services in India, as allocated between the Centre and the States, (b) the issues arising from the harmonization of taxes through the GST (c) re-structuring of taxes on commodities and services in the Union and the States Lists, taking into account the issues related to Central GST and concerned taxes, State GST, countervailing duties, entry tax, turnover tax, purchase tax, and the likely issue of levy of VAT on imports, etc. For estimating the revenue implications, the study adopted different approaches, viz. revenue approach, consumption approach and turnover approach and presented a comparative picture of estimates of revenue through all these approaches. The study was sponsored by the TFC.

8. Preparation of Addendum to the Memorandum for the Government of Meghalaya to be submitted to the Thirteenth Finance Commission (November 2009)

This study was undertaken to prepare an addendum to the State Memorandum on behalf of the Government of Meghalaya for onward submission to the Thirteenth Finance Commission (TFC). In view of the fact that the earlier memorandum was submitted by the past Government, a review of these projects was undertaken to assess the specific needs, potential and cost disabilities of the State after new Government of Meghalaya took over. To append to this, an addendum to memorandum highlighting requirements of grants for up-gradation of administration and special problems of Meghalaya was also prepared. The study was sponsored by the Government of Meghalaya.

9. Reforming VAT in Bangladesh: An Evaluation of Structure, Organization and Procedures (September 2008)

This study was in the form of a Report submitted by Dr. Purohit, as an international consultant to the Project, to the Modernization and Automation Project (MAP) of the World Bank. MAP is managed by the National Board of Revenue, Government of Bangladesh, Dhaka. The Report examined the structure, organization and procedures for VAT administration in Bangladesh and recommended necessary reforms. It was hypothesized that the National Board of Revenue (NBR) can attain a higher level of transparency and efficiency in the collection of taxes by implementing the reforms recommended in the Report. Also, it was hypothesized that the existing structure of VAT in Bangladesh has many weaknesses and does not conform to the principles of VAT. The study recommended reforms that would ensure a rational tax system conducive to economic growth which would also provide efficient tax administration.

10. Preparation of Memorandum for the Government of Sikkim to be submitted to the Thirteenth Finance Commission (July 2008)

This study was undertaken to prepare a State Memorandum on behalf of the Government of Sikkim for onward submission to the Thirteenth Finance Commission. It included all the aspects of tax and non-tax revenues, State expenditure, etc. for the past, current and projected period. The study attempted to bring together all the aspects of public finance in the State of Sikkim. The overall work was submitted in five different volumes, viz. Memorandum to the Thirteenth Finance Commission; Financial Position of the State (State Formats); Subsidiary Points (Notes on Topics- State); Memorandum and Subsidiary Points on Local Bodies; and Upgradation Grant, Special Problems and Specific Needs of the State. The study was sponsored by the Government of Sikkim.

 

11. Evaluating Tax Policies and Tax Administration in Indian States (February 2008)

This study analysed the structure and operations of some of the important state taxes and suggested measures for broadening the tax base and rationalizing structure and administration of these taxes to have an efficient and neutral tax system and effective enforcement of tax laws. With a view to doing so, the study covered three important state taxes, viz. value added tax (VAT), state excise duty, and stamp duty & registration fee. The study further aimed at evaluating tax administration and tax policies in a sample of States belonging to both developed and poor States. For this purpose it has selected four States, viz. Karnataka, Bihar, Madhya Pradesh and Uttar Pradesh. The study was sponsored by the World Bank and assigned to Dr. Purohit.

12. Public Finance Management Accountability of VAT and State Excise in Maharashtra (December 2007)

This study was in the form of a Report submitted by Dr. Purohit, as a consultant to the World Bank, Delhi Office. The study reviewed the institutional and administrative structure of value added tax (VAT) and state excise duty in Maharashtra. It recommended reforms in organization and procedures of these two taxes for improving transparency and efficiency in administration. The study was assigned to Dr. Purohit by the World Bank.

13. Study of Public Finance Management Accountability System of Government of Jharkhand with reference to VAT and State Excise Duty (April 2007)

This study was an attempt to analyse some of the indicators from the point of efficiency in tax operations. With a view to making an assessment of the public finance management accountability (PFMA) of the State of Jharkhand, this study confined its attention to only two important indirect taxes, viz. VAT and the state excise, and applied the indicators of (a) transparency of taxpayer obligations and liabilities; (b) effectiveness of measures for taxpayer registration and tax assessment, and (c) effectiveness in collection of tax payments, for improved efficiency in overall tax system. The study was sponsored by the World Bank and assigned to Dr. Purohit.

14. Value Added Tax: Experiences of India and Other Countries (March 2007)

Value Added Tax (VAT) has emerged as one of the most important fiscal innovation of the present century. In 90's alone about 50 countries have adopted this tax, thus bringing the total number of VAT countries to more than 140. India has also adopted CenVAT at the federal level and the Empowered Committee of States Finance Ministers has been striving to get the State VAT introduced by April 2002 in all the States. In this context, this book presented evolution of VAT, analysed its rationale and brought out the reasons for its popularity as a fiscal measure. In the Indian context, it presented up-to-date developments in introduction of VAT by the Union and by all the States. The coverage included an in-depth analysis of the rates, base, exemptions, taxation of services and harmonization of tax rates. Due emphasis was given to organization for tax administration as well as to the MIS for tax administration. The book presented an extremely informative account of the management of VAT in France, especially of the forfeit system for small dealers and also of GST of Canada. In the light of the experiences of all the VAT countries, the study aimed at drawing attention towards the key issues in the introduction of VAT. The present study was updated fifth edition of the book and was sponsored by the FPEPR.

15. Mobilizing Resources through Reform of Non-tax Sources for Planned Development (December 2006)

The study aimed at (i) analyzing the structure of State non-tax sources and presenting the modus operandi of their operations; (ii) examining the structural reforms and suggesting a new non-tax structure which is economically rational and yields larger resources; and (iii) suggesting procedural reforms in existing fiscal measures to minimise harassment to consumers of utilities, and making structural reforms politically palatable. The study encompasses various aspects of non-tax sources of all the States in India with special reference to cost recovery using the regression technique. The analysis of user charges at the disaggregated level for each of the services provided in different States is based on the data drawn from the State Budget documents. A comparative analysis of recovery rates (RRs) over time is based on the results for two points of time, i.e. 1993-94 to 1995-96 and 2001-02 to 2003-04. RR is defined as revenue receipts from the service as percent of revenue expenditure on service. The results of RRi (recovery rate from the ith service) among the States are based on normative approach using panel data models. Finally, the study puts forth policy imperatives for proper pricing of services to use this as a major source of budgetary receipts for the States. The study was financed and supported by the SER Division of the Planning Commission, Government of India, New Delhi.

16. Mobilizing Tax and Non-tax Sources: A Case Study of Uttaranchal (January 2006)

The study presented basic features and trends of finances in Uttaranchal and analysed the trends in tax and non-tax sources of the State from the date of its coming into existence. It further examined in details each of the tax and non-tax sources and recommended measures to mobilize resources both in the short and medium terms. In doing so it compares the existing rates and procedures of different taxes in the Indian States. Also, to determine the user-charges for non-tax sources, this study attempts an empirical exercise of ten selected services for 16 States, including Uttaranchal, to demonstrate that the current recovery rates in the form of user charges are low. The study also examines the fiscal prudence necessary for the State in view of the FRBM Act of the State. The study was sponsored by the Second State Finance Commission of Uttaranchal.

17. Revenue Implications of Introducing Value Added Tax (August 2005)

This study is the first attempt to empirically examine the effects of introducing State-VAT by replacing the existing sales tax in the States. For an in-depth analysis it takes a case study of Rajasthan and recommends measures needed to improve governance from the point of tax department of all the States as also from the view of taxpayers. The study suggests measures needed to improve the structure of VAT both in the short-run and in the medium run. Also, the study recommends as a measure of second-generation reforms to have just one comprehensive State-VAT (by merger of CenVAT into State-VAT) and some restructuring of State taxes. The study was supported by a grant from the Indian Council of Social Science Research, New Delhi

18. E-commerce and Economic Development (February 2005)

In view of the fact that the emergence of e-commerce is the most important development since the industrial revolution, this study examines the role of e-commerce as the most important factor that will revolutionize economic growth. The study presents a proper understanding of the modus operandi of tax policy and tax governance in relation to e-commerce. In doing so, it analyzes the economic implications of taxation/non-taxation of e-commerce. It also examines the issue of how the rise of e-commerce will affect the suitability of various concepts and practices in the prevailing tax systems and the overall economic development in the long run. The study suggests a bottom-up approach, wherein micro economic variables are used to prove the hypothesis. Accordingly, it makes a case study of Andhra Pradesh - the State which has launched several projects connected to the State’s portal for better service delivery to the citizen. With a view to determining the effect of e-commerce on economic development, this study proposes a methodology of estimating the productivity gains through it. The study puts forth policy recommendations to have good access and reasonable affordability of these services. The study was sponsored by South Asia Network of Economic Research Institutes – SANEI.

19. Tax Efforts of the Central and State Governments in India (November 2004)

This study estimates relative tax effort of the Centre and State governments in India. With a view to comparing the relative position of the Centre, it takes into account the tax effort of the equi-GDP countries. For the States, it compares the taxable capacity of each State with the average capacity of all the other major Indian States. The study was sponsored by the Twelfth Finance Commission.

20. Taxes on Commodities and Services in India: Estimating Revenue Potential of Harmonized Central and State Taxes (December 2003)

This was the first study undertaken by the FPEPR. The study presented a system of harmonized commodity taxes both at the Centre and at the States’ level. In addition, it estimated potential revenue of the proposed harmonized system of commodity taxes. The study was to help the Twelfth Finance Commission (TFC), to take into account the revenue implications of implementing VAT while making its recommendations. In the long-term, it has also to take care of the vertical imbalances in the taxing powers of the federal and State governments plus vertical tax externalities of taxing the same tax base by the two governments. The study was significant in view of the fact that despite the Centre’s policy decision of imposing a dual VAT system in the country, it has not been possible to introduce State-VAT, although the CenVAT has come into existence. One of the reasons for this is the lack of information about revenue implications of having this system at the State level. The States apprehend a loss of revenue on the introduction of VAT. Various models of VAT in federal countries indicate that the design of the tax should be a destination-based consumption type VAT. The empirical estimates revealed that if State-VAT replaces sales tax, the States would lose considerable revenue since CST has to be made destination-based in order to make India a common market. Also, loss due to input credit would not be compensated unless the States are given the power to tax services.