Karnataka Panel Proposes Higher User Charges and Tax Reforms for Revenue Boost

Karnataka Panel Proposes Higher User Charges and Tax Reforms for Revenue Boost

Issue: To address key financial challenges, particularly the low non-tax revenue and reliance on a few major tax sources, the Karnataka government’s committee recommended comprehensive reforms focused on maximizing non-tax collections and modernizing tax administration.

Facts:

• The Resource Mobilization Committee (RMC), headed by retired IAS officer K.P. Krishnan, was constituted in August 2024 to strengthen the state’s fiscal health.
• Karnataka’s own tax revenue forms the backbone of its receipts (60-70% of total revenue).
• The key challenges identified included low non-tax revenue (especially from user charges and government assets) and challenges in local finance due to outdated guidance values.

Decision:

The RMC submitted a report recommending structural changes focusing on increasing non-tax revenues through higher user charges and undertaking tax reforms to broaden the tax base and enhance compliance mechanisms.

Key TakeDowns (Recommendations):

• Increase User Charges: The panel recommended rationalizing and increasing user charges for government services and utilities. This should include transitioning to volumetric billing and implementing automatic indexation of user charges to inflation.
• Asset Monetization: The state should unlock revenue potential through scientific asset valuation, expanding leasing under public-private partnerships (PPP), and monetizing urban land assets.
• Excise Reform: Suggested introducing auction-based digital licensing for excise, focusing on transparency and efficiency.
• Local Finance Reforms: Recommended reforms in local finance, including addressing outdated guidance values for property and carrying out periodic property surveys.
• Institutional Strengthening: Proposed creating an economic policy wing within the Finance Department to monitor non-tax revenues and asset monetization and strengthening institutional capacity through staff training and capabilities.
• Safeguard Expenditure: The report emphasized that these systematic revenue reforms are necessary to sustain the state’s fiscal robustness and safeguard growth-enhancing expenditures on infrastructure, education, and health.