Tax Revenue of Local Governments
Taxation is the most appropriate way to fund local government services. Own local taxes make the revenue base of lower tier local governments potentially autonomous and strong. Own taxes are directly demanded and collected by Village Panchayats, Municipalities and Corporations which are remaining very close to the people. District and Block Panchayats do not have the authority to collect taxes and have no consequent expenditure autonomy as that of others. They more or less function as spending agents of higher-level governments. A three tier fragmented tax system in a federal system of governance has many inherent disadvantages. Decentralization of taxing powers hence may not fully match the decentralized expenditure, arising out of many institutions transferred as part of the functional devolution, in the new local government system.
Read more about this topic: Local Government Finance In Kerala
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