Tax base, Pros and Cons of Special Category status in Himachal Pradesh

The Department of Excise and Taxation is a major revenue earning department of the Government of Himachal Pradesh. During the year 2016-17 revenue collected under VAT was `4,381.91 crore, which is 71 per cent of total revenue collected i.e. `6,171.00 crore. During the year 2016-17 revenue of `1,307.87 crore, has been collected under the head 0039- State Excise against the target of `1,351.49 crore which was 21.19 per cent of total revenue collection and remaining 7.81 per cent collection was under the HP Passenger and Goods Tax Act, HP Luxury Tax Act, HP Certain Goods Carried by Road Tax Act, HP Entertainment Tax Act and H.P. Toll Tax Act.

The Government has fixed a target of `145.27 crore in respect of Head of Account 0042-PGT and `409.14 crore in respect of OTD-0045 for the financial year 2017-18 which is 9 percent higher than the previous financial year 2016-17.

Special status to himachal Pradesh

There are twenty-eight states and seven union territories in India. Some of the states are given some benefits by the central government as they fall under the special category states. In 1969 while devising formula for sharing central assistance among states, the Fifth Finance Commission acting in line to the Gadgil formula, had accorded special status to three states on the basis of harsh terrain, backwardness and social problems prevailing in these states. As per Gadgil formula a special category state gets preferential treatment in federal assistance and tax breaks. The special-category states get significant excise duty concessions, and thus help these states attract large number of industrial units to establish manufacturing facilities within their territory. Now many other states have also been categorized under this term like:- Arunachal Pradesh, Assam, Himachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland etc.

Benefits under Special category status

The central government allocates 30 per cent of its plan expenditure to State while the remaining 70 per cent goes to other States.
In the case of the centrally-sponsored schemes (CSS) and external aid, special category States get 90 per cent as grant and 10 per cent as loan. For general category States, it is 30 per cent grant and 70 per cent loan.
Unspent funds don’t lapse and get carried forward in the case of special category States while they lapse in the case of non-special category States.
The central government offers a host of tax benefits for the new industrial units set up in the special category States. They include capital Investment subsidy, Income tax exemption for five years, interest subsidy, comprehensive insurance subsidy, central excise duty exemption and transport subsidy.
These tax exemptions and investment subsidies are the main reason why industrialists are flocking to the special category States and setting up industrial units even in hilly areas.

Cons of special status to himachal Pradesh

Several changes over the years, more particularly those introduced in the Union Budget 2015-16, have resulted in considerable dilution of benefits to the ‘Special Category States’. The loan component of normal plan assistance was dispensed with in 2005-06 and since then such assistance is being given only in the form of grants to all States, including those in the general category. Following this, the share of ‘Special Category States’ in total normal central assistance has been around 56 per cent from 2005-06 onwards. But the share of normal central assistance in total plan assistance, which was the predominant channel of central plan assistance to States, had come down to about 15 per cent with the proliferation of Centrally Sponsored Schemes (CSS), with resultant dilution of the benefit of untied grants to States. Following the increase in tax devolution to States from 32 to 42 per cent of divisible pool of central taxes, the Centre has dispensed with normal plan assistance, special central assistance and special plan assistance from 2015-16 onwards.

There are very few externally aided projects in the ‘Special Category States’. The Union Budget 2015-16 has drastically reduced the allocations under AIBP from Rs.8,992 crore in 2014-15 to just Rs.1,000 crore. AIBP is now included in the list of schemes to be run with higher matching contribution by States.

The ‘Special Category’ status is not so special anymore following the above changes . The only attraction that remains is the benefit of assistance for externally aided projects (90 per cent grant). But even this will be of limited benefit if any new state is accorded special category for a limited period of five years or so as disbursal of external assistance cannot be substantial in such a limited period. The benefit of lower matching contribution for ‘Special Category States’ for CSS is unlikely to be substantial with the reduction of assistance to State plans by over 40 per cent to Rs.1,96,743 crore in 2015-16.

Himachal Pradesh is a state in the northern Himalayas of India. It is bordered by Jammu and Kashmir to the north, Ladakh to the northeast, Uttarakhand to the east, Haryana and Punjab to the south, and Uttar Pradesh to the southwest. The state has a Population of over 8 million people and a land area of 55,673 square kilometers. The capital of Himachal Pradesh is Shimla.

The economy of Himachal Pradesh is based on agriculture, Forestry, tourism, and manufacturing. The state is a major producer of apples, potatoes, and rice. It is also home to a number of important tourist destinations, including Shimla, Manali, and Dharamshala.

Himachal Pradesh is a special category state in India. This means that it receives special financial assistance from the central government. The state also enjoys a number of other benefits, such as exemption from certain taxes and special industrial incentives.

There are a number of pros and cons to Himachal Pradesh’s special category status. Some of the pros include:

Increased central assistance: Himachal Pradesh receives a significant amount of financial assistance from the central government. This assistance helps to fund the state’s development projects and social welfare programs.
Special economic package: Himachal Pradesh has been granted a special economic package by the central government. This package includes a number of tax breaks and incentives for businesses that invest in the state.
Exemption from certain taxes: Himachal Pradesh is exempt from certain taxes, such as income tax and Corporate tax. This helps to reduce the state’s tax burden and make it more attractive to businesses.
Special industrial incentives: Himachal Pradesh offers a number of special industrial incentives to businesses that invest in the state. These incentives include tax breaks, land grants, and power subsidies.

Some of the cons of Himachal Pradesh’s special category status include:

Lack of fiscal autonomy: Himachal Pradesh has limited fiscal autonomy. This means that the state has less control over its own finances. The central government has a lot of control over how the state’s Money is spent.
Limited developmental opportunities: Himachal Pradesh’s special category status can limit its developmental opportunities. The state is not able to raise as much revenue as it would if it were not a special category state. This can make it difficult to fund development projects.
Increased dependence on central government: Himachal Pradesh is heavily dependent on the central government for financial assistance. This can make the state vulnerable to changes in central government policy.
Reduced tax revenue: Himachal Pradesh’s special category status means that it is exempt from certain taxes. This can reduce the state’s tax revenue and make it more difficult to fund its development projects.
Increased Corruption: Himachal Pradesh’s special category status has been linked to increased corruption in the state. This is because the state has a lot of money flowing through it and there is less oversight of how this money is spent.

Overall, Himachal Pradesh’s special category status has both pros and cons. The state benefits from increased central assistance and special economic packages. However, it also faces challenges such as lack of fiscal autonomy, limited developmental opportunities, and increased dependence on the central government.

Here are some frequently asked questions and short answers about the Special Category status in Himachal Pradesh:

What is the Special Category status?
The Special Category status is a special economic package given by the Government of India to certain states in the country. These states are considered to be economically backward and are given special benefits in terms of tax concessions, central assistance, and other financial incentives.
Why is Himachal Pradesh given the Special Category status?
Himachal Pradesh is a mountainous state with a low population density. It is also a relatively poor state with a high level of POVERTY. The Special Category status is given to Himachal Pradesh to help it develop its economy and improve the lives of its people.
What are the benefits of the Special Category status?
The Special Category status gives Himachal Pradesh a number of benefits, including:
- Tax concessions: Himachal Pradesh is exempt from paying certain taxes, such as income tax and corporate tax.
  Central assistance: Himachal Pradesh receives a higher level of central assistance than other states.
  Financial incentives: Himachal Pradesh is eligible for a number of financial incentives, such as loans at concessional rates.
What are the drawbacks of the Special Category status?
The Special Category status also has a number of drawbacks, including:
- It can lead to a lack of accountability: The Special Category status can make it difficult to hold the government of Himachal Pradesh accountable for its actions.
  It can lead to corruption: The Special Category status can make it easier for corrupt officials to embezzle funds.
  It can lead to a lack of development: The Special Category status can make it difficult for Himachal Pradesh to develop its own economy.
Should Himachal Pradesh continue to be given the Special Category status?
There is no easy answer to this question. The Special Category status has both benefits and drawbacks. The decision of whether or not to continue giving Himachal Pradesh the Special Category status should be based on a careful consideration of all the factors involved.

Here are some MCQs on the topic of Special Category status in Himachal Pradesh:

Which of the following is not a benefit of Special Category status?
(A) Increased Central assistance
(B) Exemption from certain taxes
(C) Special industrial incentives
(D) No restrictions on Foreign Direct Investment
Which of the following is a reason why Himachal Pradesh was granted Special Category status?
(A) Its low per capita income
(B) Its high level of poverty
(C) Its remote location
(D) All of the above
Which of the following is a criticism of Special Category status?
(A) It creates a disincentive for states to develop their own Resources
(B) It leads to corruption and rent-seeking
(C) It is not targeted at the poorest people
(D) All of the above
Which of the following is a benefit of Special Category status for Himachal Pradesh’s economy?
(A) It has led to increased investment in the state
(B) It has helped to reduce poverty
(C) It has improved the state’s Infrastructure-2/”>INFRASTRUCTURE
(D) All of the above
Which of the following is a criticism of Special Category status for Himachal Pradesh’s economy?
(A) It has led to a brain drain, as people have left the state in search of better opportunities elsewhere
(B) It has made the state dependent on Central assistance, which can be unreliable
(C) It has led to Inflation, as the state has been able to borrow more money
(D) All of the above
Which of the following is a reason why Himachal Pradesh is likely to retain its Special Category status?
(A) It is still a relatively poor state
(B) It is still a remote state
(C) It is still a mountainous state
(D) All of the above
Which of the following is a reason why Himachal Pradesh might lose its Special Category status?
(A) It has become a relatively wealthy state
(B) It has become a more developed state
(C) It has become a less mountainous state
(D) All of the above
Which of the following is a benefit of Himachal Pradesh losing its Special Category status?
(A) The state would have more control over its own resources
(B) The state would be more accountable to its citizens
(C) The state would be more likely to attract investment
(D) All of the above
Which of the following is a criticism of Himachal Pradesh losing its Special Category status?
(A) The state would be less able to provide for its people
(B) The state would be less able to protect its Environment
(C) The state would be less able to maintain its infrastructure
(D) All of the above
Which of the following is the most likely outcome of Himachal Pradesh’s Special Category status?
(A) It will be retained
(B) It will be lost
(C) It will be changed
(D) It is impossible to say