State budget to end KIIFB privileges; motor vehicle taxes, fuel cess to go to treasury

Thiruvananthapuram: The state government is planning to end the direct credit of motor vehicle taxes and fuel cess in the account of the Kerala Infrastructure Investment Fund Board (KIIFB) and instead, deposit this revenue in the treasury. Consequently, the government will transfer funds to KIIFB whenever a requirement arises. An announcement to this effect is likely in the upcoming state budget.

The government also has plans to end investment of funds by KIIFB in banks and earning interests thereon. These proposals are based on the recommendations of the committee, led by former Cabinet Secretary K M Chandrasekhar, which prepared a white paper on the state’s finances.

As per official data, KIIFB directly receives around Rs 4,000 crore annually, which is supposed to be credited in the government treasury, of which motor vehicle taxes come to around Rs 3,300 crore. KIIFB received approximately Rs 22,000 crore in this regard from 2016 until last year. During this period, half of the amount collected as motor vehicle taxes and the one-rupee cess for every litre of fuel sold were credited the same day in the KIIFB account. The new government feels that the financial crisis faced by the state could be eased to some extent if this amount is deposited in the treasury.

Incidentally, during the terms of the first and second Pinarayi Vijayan ministries, the Finance Department had given stern instructions to all institutions under the government to deposit their entire funds in the treasury. However, KIIFB was given an exemption and the Finance Department did not exert pressure, fearing the Chief Minister’s Office. As a result, KIIFB alone has been enjoying the privilege of depositing its funds in banks.

Similarly, when KIIFB was established, it was decided that the board would repay its loans. However, the state’s financial situation worsened when the Central Government included KIIFB’s loans in the state’s credit limit. Presently, the Finance Department feels that KIIFB should not receive the government’s revenue as the state government is responsible for repaying KIIFB’s loans.

State suffers loss of Rs 14,137 crore
During the budget presentation in January this year, the then Finance Minister K N Balagopal had announced that the state government would receive Rs 14,137 crore as grant from the Centre to overcome its revenue deficit. The previous government’s budget also made various allocations, anticipating this grant.

But when the report of the Finance Commission of India was released, it became clear that the state would not be receiving this grant. Deprived of this amount all of a sudden, the state government has two options: reducing expenses and increasing revenue. By blocking the taxes, which are currently being directly received by KIIFB, and crediting the amounts in the treasury, the state government is seeking to increase its revenue.