**Stamp Duties In Indian States:  A Case for Reform** James Alm, Patricia Annez, and Arbind Modi<sup>3</sup>

# **I. Introduction**

The State governments in India impose a variety of stamp duties and registration fees on different kinds of transactions and instruments. In total, according to some estimates, over 65 different kinds of such charges are imposed by the States.<sup>4</sup> These charges effectively amount to a tax on the value of a transaction, most commonly on the transfer of movable and immovable properties and of instruments used in commercial and business transactions. In their entirety, stamp duties and registration fees amount to a significant source of revenues for most of the State governments, often the third or fourth most important source of own tax revenues. For example, according to 2002-2003 budget estimates from the Reserve Bank of India (2003), stamp duties and registration fees are estimated to generate for all States Rs. 132,588 million in revenues, or 6.2 percent of total tax revenue of all States, behind only State sales taxes (43.3 percent) and State excise duties (9.4 percent) in relative importance.<sup>5</sup> Because of their size, stamp duties and registration fees are also likely to have a number of effects on the ways in which the States’ economies function, some positive but many negative. Stamp duties have become the subject of particular policy interest since the Urban Reform Incentive Fund (URIF) identified the reduction of stamp duties as a major element in the reform program to be undertaken by States, because of their distorting effects on real estate transactions.

This paper considers some of the economic and fiscal questions for policy makers considering reforms in stamp duties, especially stamp tax reductions.<sup>6</sup> In particular, we examine stamp duties and registration fees, referred to for simplicity as “stamp duties”. The administration of the stamp duties will be briefly examined, but our main focus will be on two other issues. First, how distorting are the stamp duties in their effects on resource allocation? Second, what would be the effects, especially the revenue effects, of previously suggested reforms in stamp duties that lead generally to lower tax rates? In this analysis, the ways in which

> 3 . Department of Economics, Andrew Young School of Policy Studies, Georgia State University; World Bank; and Ministry of Finance and Company Affairs, Government of India, respectively.  The authors are grateful to a number of individuals with whom they met for many helpful discussions and much useful information: Mr. Govinda Rao, Mr. Om Prakash Mathur, and Mr. Tapas Sen, the National Institute of Public Finance and Policy; Mr. P.S.S. Thomas, Planning Commission; Mr. Vinor Tewari, the National Institute of Urban Affairs; Ms. Renuka Viswanathan, Tariff Commission; Dr. Vijay Kelkar, Advisor to the Ministry of Finance and Company Affairs; Mr. N. John Kurian Planning Commission; Mr. G.C. Srivastava, Finance Commission.  Ms. Kathryn Owens and Mr. Jerry Kalarickal at the World Bank provided valuable research assistance for this paper. The authors are grateful to Mr. K. G. Krishnamurthy of the Housing Development Finance Corporation for providing data on market values of real estate in selected Indian cities.

> 4  See the National Institute of Public Finance and Policy (1995), _Economic Reforms and the Stamp Act_ (New Delhi, India).

> 5  See Reserve Bank of India (2003), _State Finances – A Study of Budgets 2002-03_ (New Delhi, India). 6 A number of states have already taken action to lower stamp duties or have maintained them at the levels envisaged under URIF, among them Delhi, Gujarat, Karnataka, Maharashtra, Punjab, and West Bengal.

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