Tax Revenue Capacity and Tax Effort of Kerala: Analysis during Pre- and Post- Period of Accelerated Economic Growth

To meet several of her developmental requirements Kerala requires sufficient tax revenue mobilisation. This paper is an attempt to empirically estimate the effort taken by Kerala in mobilising tax revenues in relation to its taxable capacity during two different phases of the state’s economic growth trajectory: 1970-71 to 1999-00 and 2000-01 to 2012-13. Whereas the first period has experienced stagnant to moderate economic growth, the second period saw rapid economic progress. The findings of the paper reveal that though Kerala was able to improve the tax effort with respect to land revenue, motor vehicle tax and passengers and goods tax, state excise duty and own tax revenue during the period of accelerated economic growth in the case sales tax, which contributes the lion’s share of the tax revenue, the state’s tax effort lowered significantly. Also, the state has earned lowest ranking based on the tax effort for many taxes when compared to other comparable states. On the whole, the findings of the study calls for policy measures aimed at improving Kerala’s tax effort on par with higher ranked states.