Rangarajan suggests state income tax for revenue increase

Chennai: Former Reserve Bank of India governor C. Rangarajan has proposed that state governments introduce a state income tax to increase their revenue, similar to the United States. During a lecture at the Madras School of Economics, he acknowledged concerns about heavy taxation but argued that it could be managed simply. Rangarajan explained that a state income tax would not require a complicated process. Individuals would report their income, and the state would take a percentage, without needing detailed income statements. He noted that current major sources of tax revenue for states include liquor, tobacco, and petroleum products, but revenues from petroleum are expected to decline. To raise more funds, Rangarajan also suggested implementing other direct taxes, such as an expenditure tax and a tax on financial transactions. He emphasized that a small tax on financial activities could generate substantial revenue. Additionally, Rangarajan highlighted the slow transition from fossil fuels to renewable energy. He warned that energy security is crucial, as 30% of India's imports are oil. He reminded attendees of the 1991 economic crisis triggered by rising oil prices, which impacted the nation’s finances significantly. In the same lecture, Laveesh Bhandari from the Centre for Social and Economic Progress proposed other measures for energy transition. He recommended increasing electricity rates and implementing taxes based on vehicle distance traveled. Bhandari suggested higher taxes for petrol vehicles and lower rates for electric and smaller vehicles. He also mentioned that carbon taxes might be practical as a supplement for industries like thermal power, fossil fuel refining, and heavy emitters like steel and cement. Bhandari proposed integrating these taxes within the Goods and Services Tax framework.