Free trade screams for labor mobility. It’s time Kerala and Karnataka realize this

By Amol Agrawal

It is all so funny and idiotic at the same time. The kind of attention media has put on GST vs near ignorance of emerging state level taxes is puzzling. On one hand, we are creating this vision of one market one country for goods and services but on the other had looking for restricting labor movements for both work and leisure.

[su_pullquote]This tax was applied retrospectively without any notice.[/su_pullquote]

Earlier, the Karnataka govt imposed a life time tax on outside cars which was ruled out by the High court. But there is no clarity on the status of the tax and whether those who paid it will get refunds. The government should also be paying a penalty along with refund of the tax. This tax was applied retrospectively without any notice. Given how much noise media made over retrospective cases for big companies, no such articles for the common man.

Things just don’t end here. Apart from this, Karnataka also imposed an entry tax for Kerala vehicles (don’t know when this started). Now in a tit for tat, Kerala government has imposed taxes on Karnataka vehicles travelling to the state for leisure. The other state and all India vehicles to pay a basic entry tax and those from Karnataka a one year entry tax:

Even as the Kerala government starts implementing a new tax structure for entry of tourist vehicles from other states, passengers from Karnataka are set to be the worst-hit due to what Kerala’s Motor Vehicles Department officials called a “reciprocal” issue.

A Transport Commissionerate circular dated July 18, 2016, incorporating the new Finance Bill provisions, has brought basic entry tax for vehicles from other states operating on special permits and all-India permits on par with tax for inter-state vehicles registered in Kerala.

Karnataka, however, comes as an exception in the all-India permit category; contract carriage vehicles registered in Karnataka entering Kerala on all-India permits can ply only after paying entry tax for the entire year, irrespective of the number of trips made. The reason? According to MV Department officials, it’s because Karnataka collects on Kerala-registered vehicles a fixed fee spanning an “authorisation period” of about a year.

“Tax for three months should be collected on vehicles entering with all-India permits under Section 88(9) of the Motor Vehicles Act. However, if any state is collecting annual entry taxes on vehicles registered in Kerala (for instance, Karnataka), the Finance Bill offers provisions to collect annual taxes on vehicles registered in that state,” says the circular.

“Entry tax for the entire year is being collected only on Karnataka-registered vehicles with all-India permits,” V Suresh Kumar, Senior Deputy Transport Commissioner (Tax) told Deccan Herald. For a 40-seater with push-back seats from Karnataka, the entry tax (see inset) will be Rs 5.6 lakh (prescribed per-seat tax of Rs 3,500 x 40 x 4).

As mentioned by S. Anil Radhakrishnan in the Hindu:

[su_quote]The Finance Bill has clearly pointed out that if any State (Karnataka) accepts an annual tax from motor vehicles registered in Kerala, the annual tax will only be taken from the motor vehicles from that State (Karnataka) coming down with all-India permit under Section 88(9). Of the hundreds of contract carriages operating between Kerala and Karnataka and other cities and towns, only 20 are registered in Kerala. Association of Tourism Trade Organisations India (ATTOI) president Anish Kumar P.K said reports of tourists returning at check-posts on the Kerala-Karnataka border unable to pay the hefty tax and tourists crossing over and hiring Kerala registered vehicles are pouring in. The Motor Vehicles Department is aware of the hassles faced by the tourists coming through the check-posts of Walayar, Manjeswaram and Muthanga since July 19. Joint Transport Commissioner Rajeev Puthalath said the concerns of the short-visitors will be taken up with the government once the petition is obtained. The issues likely to crop up during the Sabarimala season will also be looked into. The new taxes for vehicles from other States are on a par with vehicles registered in Kerala and having all-India permit, he added. [/su_quote]

With the date for implementation of GST just around the corner, this is not a really good sign. As states lose powers to tax goods and services, the States could just be looking at taxing the movement of people. Similar knee jerk taxes on businesses would have led to some backlash but nothing of this sort will happen for people. It is all big money everywhere.