According to the World Bank report State Fiscal Reforms in India: Progress and Prospects, Haryana has the highest own-revenue/GSDP (Gross State Domestic Product) ratio, which is more than twice as high as that of West Bengal.
West Bengal, under CPI-M rule for decades, collects a little more than 4% of GSDP as revenue. The bulk of the state governments revenue comes from taxes. Non-tax revenue realisation in West Bengal is negligible, compared to other states.
In sharp contrast to West Bengal, Haryana, where political fortunes change with every election, collects more than 10% of the GSDP followed by Punjab, Gujarat and Andhra Pradesh. These are the only four states, as per the 2001-02 data, which collect more than 10% of the GSDP as revenue.
What is significant is that even poorer states like Bihar, Orissa and Uttar Pradesh collect more revenue as a percentage of their respective GSDPs than West Bengal. The own-tax/GSDP ratios tend to be on the low side in the poorer states, around 8% for Rajasthan and Madhya Pradesh, 7% for UP and Orissa and 5% for Bihar.
Chhattisgarh and Jharkhand have been doing better due to large non-tax revenues, mainly mineral royalties.
The report also reveals that middle and high income states have ratios in excess of 9% with the exception of Kerala, again a state where Left parties play a critical role in local politics.
One of the main reasons for low tax/GSDP ratio in poorer states is the higher share of agriculture in the GSDP. The low ratio can also be attributed to poor tax effort resulting from poorer tax administration and the cushion available in the form of large volume of central grants, the World Bank report observes.
For states, the bulk of the revenue comes from sales tax which contributes some 60% of total own-tax revenue. Its importance is also derived from relatively broad-based coverage of industrial goods, even though services are excluded. The sales tax comprises the General Sales Tax (GST), levied on interstate sales, and the Central Sales Tax (CST), applicable to interstate sales, which is legislated by the Centre but collected by the states.
Many states levy additional taxes on selective services (electricity, transportation and entertainment) and additional surcharges.
As far as non-tax revenue is concerned, the worrying fact is that its share has come down from 2% of the GDP in the mid-1980s to 1% currently. It is imperative that state governments focus on improving the revenue performance of major non-tax revenue sources. According to the World Bank report, Unlike tax revenue, where many problems are common across taxes and their administrations, different non-tax revenue sources have very distinct problems although institutional strengthening is of importance across the board.
There is a lot of scope for increasing revenue from mineral royalties which constitute a major source of non-tax revenue. Revenue from the sale of forest produce is next in importance to mineral royalties. But forest departments pay limited attention to sale of forest produce, perceiving their role primarily in terms of conservation and protection of forests and wildlife.
Other sources of non-tax revenue which need attention are imposition of user charges and receipt of interest from loans advanced to state public sector enterprises.