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AcaseforprofessionaltaxinIndia
Revenueenhancementofmunicipalitiesisneededtoaddresstheyawninginfrastructuregapinourcities

Thereareapproximately4,000municipalitiesinIndia,with
aggregaterevenuesoflessthan`1trillion,whichincludesgrants
fromcentralandstategovernmentsandloans.UrbanIndiais
estimatedtoneedcapitalexpenditureoftheorderofaround`3trillion
perannum,besidesadditionalfundsforrevenueexpenditure.A
substantialportionofthesemonieswillneedtoberaisedby
municipalitiesthemselves,giventhatstateandcentralfundsare
spreadovervariousequallyimportantpriorities.Onerevenuestream
thatcouldhugelyempowermunicipalitiesisprofessionaltax.They
canreapthebenefitofarapidlyurbanizingpopulationanda
concomitantincreaseintheworkforcebypayinggreaterattentionto
mobilizingprofessionaltax.

professionaltaxisleviedbystategovernmentsormunicipalities
underArticle276oftheConstitution,whichprovidesforlevyoftaxin
Photo:HindustanTimes
respectofprofession,trade,callingandemployment.Unfortunately,
theConstitutionalsofixesaceilingof`2,500pertaxpayerper
annum.

Importantsourceofrevenue
Municipalitiesarelocalselfgovernmentsandneedaccesstoseveralbuoyantrevenuestreamsiftheyaretoevolvefromricketyinstitutions
intotransformativecitygovernments.Atpresent,mostcitiesaregreatlydependentonpropertytaxrevenuestofinancetheirbudgets.
professionaltaxcanbeasignificantauxiliarysourceofincomewhichensuresthatasliveroftheeconomicgrowthbeingenjoyedbythecity
anditscitizensispartiallyharnessedforpublicinfrastructure.

Atpresent,21statesinIndiaimposeprofessionaltax.Thetaxisapplicabletoallpersonsengagedinanyemploymentorprofessionin
somestatesinsomeothers,itisapplicableonlytocertainspecifiedprofessions.Thetaxmaybeleviedandcollectedbythestate
governmentaloneinsomecases,whileinstatessuchasKeralaandTamilNadu,municipalitiesalsolevyandcollectthetax.

Forsomecities,professionaltaxisthemostimportantsourceofincomeafterpropertytax.IntheCorporationofChennai,forinstance,it
contributes`200croreannually,halfasmuchpropertytax.Professiontaxcontributesaround`90croretotherevenuesofSuratMunicipal
Corporation,around30%ofitspropertytaxcollection.ThecorrespondingfigureforHyderabadisaround`100crore.

professionaltaxcouldprovideanalternativesourceofrevenuetocitiesthatstandtolosecurrentsourcesofrevenuesuchasoctroi,entry
taxorlocalbodytaxduetotheimpendingrolloutofthegoodsandservicestax.However,toplugthegap,arenewedfocusonleveraging
professionaltaxwouldbecalledfor.

Astrongcasefordevolving

professionaltax

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5/5/2017 AcaseforprofessionaltaxinIndiaPrintViewLivemint
The14thFinanceCommissionrecommendedthatprofessionaltaxcouldbeanimportantsourceofrevenueforlocalbodies,iftheyare
allowedtolevyandcollectitunderstatelegislationwithinareasonableceilingsetbyParliament.Theempoweredcommitteeofstate
financeministersontheimplementationofthegoodsandservicestaxhadalsorecommendedremovingthecaponprofessionaltax,
whichwouldbringmorerevenuetothestates.

Theoriginalceilingonprofessionaltax,asprescribedintheConstitutionpassedbytheConstituentAssembly,was`250ayear.Itwas
raisedto`2,500ayearin1988andsincethenboththe11thand12thFinanceCommissionshaverecommendedanincreasethe11th
FinanceCommissionalsosuggestedthatthecurrentrequirementofaconstitutionalamendmenttofixtheceilingbereplacedwith
parliamentaryapproval.The14thFinanceCommissionhasalsorecommendedanincreaseintheceilingto`12,000.

Inaresearchreportsubmittedtothe14thFinanceCommission,theVidhiCentreforLegalPolicyrevealsthattheGovernmentofIndiaAct,
asenactedin1935,didnotcontainanylimitontheamountofprofessionaltaxthatcouldbeleviedbytheprovinciallegislatures.The
relevantsectionwasinsertedin1940tocurtailthepowersoftheprovincialstatestotaxincome.

AsperVidhi,inmostfederalsystems,eitherthelevyorcollectionofincomeandprofessionaltaxiswhollywithinthepurviewofmunicipal
bodies(Switzerland)orwiththefederalgovernment(Mexico).InthecontextoftheUSandCanada,bothfederalandstategovernmentshave
thepowertoimposeincometaxes.Innoneofthesenationsisthestategovernmentspowertoimposeaprofessionaltaxlimitedbythe
federalgovernment.

Afteralmost70yearsofindependence,withthequestionofthefederalstructureofourgovernmentlargelybeingsettled,thetimeis
opportunetoempowerstatesandmunicipalitieswithgreaterresponsibilityfortheirfinances.Parliamentshouldconsiderempowering
statelegislaturestodecideonallaspectsrelatedtoimpositionofaprofessionaltax,includingtheneedforaceiling.

Strikingabalance
Revenueenhancementofmunicipalitiesneedstobeanationalpriorityiftheyawninginfrastructuregapinourcitiesistobeaddressed.A
principalcomponentisfiscaldecentralization,withafocusondevolvingbuoyantrevenuestreamstomunicipalities.Inthecaseof
professionaltax,Parliamentshoulddevolvetostatelegislaturesthepowertolegislateonallaspectsrelatedtoimpositionofthesame.
Statelegislaturesshoulddotheirpartbycommittingtopassonthisrevenuegeneratedbythecitiesbacktotheirmunicipalities.

Statesandmunicipalitieshavetofindtherightbalancebetweenloweringtaxestoattractinvestmentsandmaximizingrevenuestomake
theircitiesmorelivable.Norationalcitizenwillgrudgetheirgovernmentthatextrarupee,ifusedtoprovidethemabetterqualityoflife.

AnilNairisseniormanagerofadvocacyatJanaagrahaCentreforCitizenshipandDemocracy.

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