Revenue generation: Trade suggests how

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As Finance Minister Abdul Rahim Rather prepares to draft the budget 2009, he has been interacting with trade and industry chieftains for inputs. Kashmir Life presents its readers the suggestions that Kashmir Chamber of Commerce & Industry (KCCI) and Federation Chamber of Industries Kashmir (FCIK) have made to the minister.

Barring the egos, chieftains of Kashmir trade and industry think on almost similar lines. Insisting that law and order is out of control of a trader and entrepreneur, FCIK wants government to pay compensation for 1800 days of strikes and curfews at Rs 100 a day. KCCI, at the end of summer agitation, had shot a letter to chief secretary almost on similar lines. On key issues like power and the revival of sick industry, the two differ only in words.

Take for instance the key power sector. Both KCCI and FCIK see NHPC as exploiter of state’s water resources. They are against the Joint Venture between NHPC and Power Development Corporation (PDC) and want fundamental shifts in shareholding.

KCCI wants modifications in the system of signing agreements for implementing power projects. It wants a shift from BOOM (build, own, operate and maintain) to BOOT (build, own, operate and transfer), seeking a minimum of 15 percent energy as royalty and an additional one percent for local area development. It wants state government to pursue the recommendations made by one of the five working groups that the amount coming to power sector by debit under Prime Ministers Reconstruction Plan be given to state for managing its equity of its own power projects.

The two bodies have made a strong case for privatizing the power distribution given the fact that J&K is one of the few states with massive losses in transmission and distribution (T&D). Both have ideas for converting “this loss” into a resource.
J&K over the years is spending heavily. In 2008-09, for instance, J&K spent Rs 19,077 crores. But Rather continues to inherit the worry of his predecessors that the state with a narrow resource base (not more than Rs 3,000 crores) needs to generate additional funds. It is on this issue that the two entities differ. While differing, however, they are at their innovative best to help Rather in finding additional resources.

Here are the suggestions made by KCCI president Dr Mubin Shah on additional resource mobilization:

Copy Delhi or Andhra model for managing T&D losses in power. In Delhi, private sector has been given the responsibility of power distribution and tariff collection while in Andhra the employees of the department have been made personally responsible in specific areas. Of the yearly energy purchase of Rs 2073.30 crores, J&K losses Rs 470 crores on T&D losses a year. Avail existing scheme of Northern Regional Electricity Board (NREB) to take the power factor from 0.80 to 1.00. Right now, one MW of power purchased comes as 0.80 MW for distribution.

Given the exponential increase of vehicles, impose additional cess on petrol. Double registration fees to Rs 10,000 per vehicle depending on the cubic capacity.

Increase VAT on gold from one to two percent.

A minimum of Rs 500 be levied as entry fee for vehicles entering picnic spots of Sonamarg, Gulmarg, Pahalgam, 25 percent of which be allocated to the respective development authority.

Privatize various units of state run public sector understandings.

Increase VAT on pulses, basmati rice, bakery, confectionary, cigarette, tobacco, gutka and alcohol.

All commercial land occupied by army and paramilitary be taken back and sold to private sector.

Introduce work permit for outside labour which will essentially increase employment of local work force, safeguard Kashmir brand, reduce begging, and improve work culture and skill development.

Impose service charge on mobile usage and satellite TV by 15 percent.

And this is what FCIK president Shakeel Kalander thinks:

J&K does not impose electricity duty (22%) to energy consumption of central government departments which it levies on all consumers in the state including the power department itself. This provision has never been ratified by the state legislature. In 2008-09 central government establishments consumed energy worth Rs 123.54 crores and state lost the duty worth Rs 27.17 crores. Besides, SERC in its tariff orders for 2007-08 had approved a rate of Rs 4.89 per unit, determined on the basis of actual cost of supply, to be charged by PDD from such establishments. Incidentally, the cost of supply to PDD for the previous year has increased to Rs 6.25 per unit (approximate) which is 27.81 percent higher than the approved tariff. Since the SERC has approved tariff at cost of supply basis, an additional amount of Rs 34.25 crores is recoverable from central government establishments. Both these provisions would fetch an additional resource of Rs 69 crores.

At a highly subsidized non-domestic commercial tariff of 2.59 percent, state gets barely Rs 15 crores against expected Rs 40 crores. The income is barely Rs 15 crores against expected Rs 40 crores. Doing away with anomaly – over four rupees – will fetch in an additional Rs 25 crores.

Privatize power distribution and set the target of reducing T&D losses by Rs 100 crore a year. The losses are at Rs 1200 crores.

Scrap the Baglihar M&O deal with NHPC for Rs 120 crores a year.

Non implementation of the agreement with Punjab over Thein dam has led to the loss of 120 MWs totaling around Rs 3357 crores (Rs 373 crores per year) and government should implement it thus saving Rs 33 crores.

Apex court permits extraction of eight million cubic feet of fallen, diseased and dead timber from forests that must fetch net revenue of Rs 600 crores. Procedure for extraction and sale of timber be streamlined and subsidy on supply of timber to selected beneficiaries from so called general public for construction of their houses withdrawn. It will fetch additional Rs 125 crores as tax.

Set up Mineral Development Authority and draft a well defined mineral policy in consonance with the National Mineral Policy so that it fetches Rs 500 crores annually.

Impose an entry tax of Rs 5 per kilogram on chicken. It will fetch additional revenue of Rs 100 crores a year and encourage local entrepreneurs.

Increase the list of items coming under the ambit of entry tax bringing in more finished goods – mineral water, spices, beverages, furniture, electrical goods, spun pipes, PVC products. J&K imports printed stationery worth Rs 1000 crores despite more than 500 units engaged in the printing jobs. This must get another Rs 300 crores.

Impose heavy tax on raw material exports – animal hides, skins, mineral produce like lime stone and gypsum, major and minor forest produce – to encourage its value addition within J&K. It must get Rs 50 crores to public kitty.

Impose a cess of 2 percent on the sale of power from power projects owned by NHPC, JKSPDC which would get Rs 100 crores to the state.

Contractors working for ERA, Centrally Sponsored Schemes, Railway Projects, Power Augmentation under Rural Electrification Programme import goods against form-C and usually do not make any local purchases, thereby saving the content of VAT on taxable material. Local contractors engaged in various works purchase their material locally and pay VAT on prescribed rates. This anomaly should be done away with by imposing a special tax of 2 percent on all contracts above Rs 10 crores to raise Rs 100 crores annually.

A cess be imposed on telecom operators to raise additional Rs 100 crores.
n FDRs received by Commercial Taxes Department as security deposit be en-cashed and considered as part of revenue. This will fetch the state kitty another Rs 300 crores.

The suggestions from two trade bodies, however, have not come in free. Both want some relief on certain vital issues. And they have submitted their entire wish list to Rather.

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A journalist with seven years of working experience in Kashmir.

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