Former RBI governor moots state income tax

Chennai: State govts could levy state income tax to boost their revenue like in the US, former RBI governor C Rangarajan has suggested. But won't this result in heavy taxation? "While this is an issue, actually it doesn't have to," said Rangarajan during the Raja J Chelliah memorial lecture at Madras School of Economics on Thursday. "For state income tax, you don't have to go through a very elaborate process. File income tax. You arrive at what your income is, and a percentage of it is taken as state income tax. They will not look at your income statement," he said."If you look at the state govts budgets, the main sources of tax revenue are three liquor, tobacco and petroleum products. Petroleum products revenue will go down. If you want to raise the revenue, you must widen the tax base. But we are not widening the tax base as it was in the recent Union budget," Rangarajan said.To improve revenue, he also suggested levying of direct taxes such as expenditure tax and a levy on financial transactions. "You levy a tax on every financial transaction. I was opposed to it when we wanted the financial system to develop. You will get a huge amount, and you have to keep the tax (Tobin tax) at a very low level," he said. He also said transition from fossil fuel to renewable energy was not happening fast. "Thirty per cent of our import is oil, and therefore energy security becomes a critical issue." Recalling the 1991 crisis due to a surge in oil prices, he said cost of oil import increased from $3.8 billion to $6 billion, and the country did not have resources to meet the bill, which led to a lot of issues.Delivering the Raja J Chelliah lecture on "The Fisc and India's Energy Transition", Laveesh Bhandari, president, Centre for Social and Economic Progress, New Delhi, suggested increasing electricity rates and distance-travelled taxation for energy transition. "Petro-based vehicles would incur a higher tax rate, while electric vehicles would pay less. Similarly, smaller vehicles will be charged a lower rate, and large vehicles such as SUVs could be charged a higher rate," Bhandari said. "Carbon taxes may be more feasible if we consider them top-up tax for thermal power generation, fossil fuel refining, and major emitting sectors such as steel, cement, and fertilizers. We can also try to fuse carbon taxes within the GST regime."