After five poll guarantees, Karnataka to hire private consultant to increase tax collection & plug leakages

The selected firm will identify initiatives to increase compliance and broaden the taxpayer base to enhance Karnataka's tax revenues, with a specific focus on commercial taxes, road tax, excise duties and land registration fees/stamp duties.

According to the tender documents, the selected firm will also undertake a thorough review of existing tax bases across districts and industries. This comprehensive analysis will cover historical tax collection trends and benchmarking exercises against practices adopted in other states to identify avenues for improvement.

LK Atheeq, additional chief secretary (state finance department), told Moneycontrol: "This is the first time the state finance department is hiring a professional consultant in the wake of the new model of development, with large cash transfers being proposed. We have decided to seek professional help to further increase our revenue streams without burdening the taxpayer."

"We plan to rationalise expenditure, enhance efficiency and improve public expenditure. These are the two primary goals of this exercise: how to increase revenue sources and streamline expenditure. For the first objective, we will task them with finding ways to increase tax compliance since tax rates cannot be increased significantly. Unreasonable taxation increases could lead to lower compliance. So increasing compliance and addressing tax evasion are key. We also plan to utilise PPPs and asset monetisation to generate more revenue." Atheeq said.

Tech to plug gaps in revenue collection

The finance department is also planning to leverage advanced data analytics tools that will enable pinpointing potential gaps in revenue collection and devising strategies to enhance compliance and broaden the taxpayer base. The firm will also suggest best practices in the field of revenue collection from around the world, including the utilisation of technologies such as blockchain and AI, which can be effectively deployed in the local context. Administrative reforms within departments such as commercial tax, stamps and registration, and excise will also be explored to streamline revenue collection processes, the tender document said.

"The idea is to leverage technology for real-time monitoring of expenditure and revenues, enabling the generation of dashboards for better decision-making. We also seek to explore how technology can enhance tax compliance," said  Atheeq.

Also Read: Karnataka Budget: State bets big on Artificial Intelligence & Machine Learning

New revenue sources

The consultant will focus on identifying new revenue sources in departments such as mining and forests. It will also explore user fees and new/innovative sources of non-tax revenues. A detailed review of existing royalty fees, licence fees and permit charges will be conducted, benchmarked against national and global standards to identify untapped revenue potential.

Additionally, leveraging data analytics will facilitate the identification of areas for improvement in fee collection processes and the exploration of innovative revenue streams. Asset monetisation opportunities will also be explored, the tender document states.

The consultant will delve into creating a detailed baseline of existing funding sources, conducting comparative analyses of various funding modes and prioritising funding sources based on key parameters. Facilitating discussions between relevant agencies and the finance department will pave the way for securing funding agreements aligned with the state's financial capacity and long-term sustainability.

Expenditure rationalisation in four key depts

The consultant also will define policy interventions and revamp expenditure processes across various departments. This will include a thorough baseline assessment of historical spending patterns, stakeholder consultations, benchmarking against best practices from other states, and the development of streamlined standard operating procedures. The focused interventions will target key four departments: irrigation, energy, public works and rural development.

Through comprehensive baselining processes and benchmarking exercises, specific areas for cost savings and outflow reductions will be identified. Detailed recommendations accompanied by robust monitoring and reporting mechanisms will ensure transparency and accountability in expense reduction efforts, it said.

Private sector funding

In a bid to leverage private sector expertise and resources, the consultant will conduct an in-depth analysis of various departments' project pipelines, identifying potential PPP opportunities. Top projects will be earmarked for PPP consideration, with customised models developed for each project, emphasising effective communication and consensus-building between private players and relevant government departments.

Strategic project management office

To ensure effective project management and execution, the consultant will set up a strategic project management office for priority initiatives of the finance department. This will involve defining project scopes, outlining action plans, establishing key performance indicators and implementing robust monitoring and tracking systems to evaluate the impact of initiatives.

Also Read: Karnataka budget's puzzling question: Why has the govt cut capex by nearly 28 percent?

State finances

In February, chief minister Siddaramaiah, who also holds the finance portfolio, presented a revenue-deficit state budget for 2024-25, with total outlay set at Rs 3,71,383 crore. The deficit stood at Rs 27,354 crore, marking the first instance where borrowings in a fiscal year surpassed the Rs 1 lakh crore mark. Siddaramaiah also allocated Rs 52,000 crore towards the implementation of five guarantee schemes for 2024-25.