An Analysis of Tax Buoyancy in Nagaland

Abstract

An effective tax structure is vital in order to maintain fiscal stability. In the context of fiscal policy, tax revenue serves as an indispensable source of public expenditure. Tax Bouyancy measures the responsiveness of tax revenue to changes in Gross Domestic Product. The main objectives of this study was to show the percentage share of each component to the total revenue and their responsiveness to the growth in Gross State Domestic Product for a period of 13 years (2011-23). The study found out that majority of revenue comes from grants from centre; above 60% for the whole period indicating high financial dependence on the centre. The share of own tax and own non tax to the total revenue was below 8% and 4% for the whole period.  The study found out that the degree of tax buoyancy for total tax revenue was 1.2 which implies that total tax revenue increased more than proportionately to increase in income. It finding also showed that except for Own Non tax revenue (0.45) and Grants from centre (0.76), the buoyancy of own tax revenue (2.04), shared tax (2.44) and total revenue (1.2) are more than unity for a period. Among different component, own non-tax revenue and grants from centre showed stability during the same period. The article concludes by suggesting for revamping of sick industries, exploring petroleum reserve, lifting of Liquor prohibition in the state and developing tourism industry to enhance own revenue generation.

Key Word: Tax buoyancy, Revenue, Gross State Domestic Product.