Commidity tax Performance

Sales tax is considered to be the milch cow of Indian states. Contributing almost 60% of states own tax revenue, the performance of sales tax is one of the major factors affecting the overall tax effort of states. In federations like India, where tax effort of units is accepted as one of the criteria for the devolution grants in-aid, inappropriate measurement of tax effort of units can result in perverse transfer of resources.

The author has identified the methodo logical limitations of some of the existing studies on the measurement of relative sales tax potential and effort of states and attempts to offer an alternative methodology. Taking the case of Kerala, one of the Indian states, the book analyses the factors contributing to the performance of an individual state in com modity taxation keeping the federal character of the country in the background. The results show that the adhoc measures introduced over the years, purely dictated by revenue consi derations have made the tax structure extre mely complex. The empirical study of evasion has clearly shown that the complicated tax structure was a major factor responsible for the weaknesses of administration and enfor cement machinery.