The government of West Bengal has recently imposed a tax on the entry of goods into the local areas of the State. According to the Finance Minister, this will help meet 'cost for facilitating trade and industry in the State'. Many States impose entry tax on goods coming into their areas of jurisdiction. Entry Tax is imposed by States under the provisions of Entry 52 of the State List and Article 304 of the Indian Constitution. These read as under: Entry 52, List II of the Seventh Schedule (State List) “Taxes on the entry of goods into a local area for consumption, use or sale therein.” Article 304: Restriction on trade, commerce and intercourse among States "Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law – (a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President." Are there any restrictions to the power of States to impose entry taxes? The use of the words 'so, however, as not to discriminate ' and 'reasonable restrictions' in the above articles constrain the power of States to some extent. Several petitions challenging the imposition of entry taxes have been filed before courts. In 2008, the Supreme Court has referred the entry tax issue to a larger bench. This case is currently pending. What are the arguments in favour and against the imposition of such taxes? Arguments in favour of entry tax
Arguments against entry tax
In addition to the above, it can also be said that an entry tax goes against the principle envisaged under the Goods and Services Tax (GST) regime. The GST aims to create a common market throughout India without any taxes on inter-state movement of goods. A Constitutional Amendment Bill to facilitate the implementation of GST is currently pending in Parliament.
According to news reports, the Prime Minister recently chaired a meeting with ministers to discuss an alternative plan (“Plan B”) for the National Food Security Bill, 2011 (hereinafter “Bill”). The Bill is currently pending with the Standing Committee of Food, Consumer Affairs and Public Distribution. It seeks to deliver food and nutritional security by providing specific entitlements to certain groups. The alternative proposal aims to give greater flexibility to states and may bind the centre to a higher food subsidy burden than estimates provided in the Bill. It suggests changes to the classification of beneficiaries and the percentage of the national population to be covered by the Bill, among others. Classification of beneficiaries The Bill classifies the population into three groups: priority, general and excluded. Individuals in the priority and general groups would receive 7 kg and 3 kg of foodgrain per person per month respectively at subsidized prices. Plan B suggests doing away with the priority-general distinction. It classifies the population on the basis of 2 categories: included and excluded. Those entitled to benefits under the included category will receive a uniform entitlement of 5 kg per person per month. Coverage of population Experts have suggested that the Bill will extend entitlements to roughly 64% of the total population. Under the Bill, the central government is responsible for determining the percentage of people in each state who will be entitled to benefits under priority and general groups. Plan B suggests extending benefits to 67% of the total population (33% excluded), up from 64% in the Bill. The Ministry has outlined two options to figure out the number of people in each state that should be included within this 67%. The first option envisages a uniform exclusion of 33% in each state irrespective of their poverty level. The second option envisages exclusion of 33% of the national population, which would imply a different proportion excluded in each state depending on their level of prosperity. The Ministry has worked out a criterion to determine the proportion of the population to be included in each state. The criterion is pegged to a monthly per capita expenditure of Rs 1,215 in rural areas and Rs 1,502 in urban areas based on the 2009-10 NSSO survey. Thus, persons spending less than Rs 40 in rural areas and Rs 50 in urban areas per day will be entitled to foodgrains under the alternative being considered now. Financial estimates Newspaper reports have indicated that the revised proposal will add Rs 7,000 to Rs 10,000 crore per year to the current food subsidy estimate of Rs 1.1 lakh crore. According to some experts, the total cost of the Bill could range anywhere between Rs 2 lakh crore to Rs 3.5 lakh crore (see here and here).
