The 73rd Constitutional Amendment Act has entrusted Panchayati Raj Institutions (PRIs) (Third Tier) with a wide range of responsibilities. Discharging these responsibilities requires an adequate tax administration. But even prior to this amendment, tax administration of the panchayat bodies were not strong enough to implement the functions they were expected to perform. They are heavily dependent on the grants from Central Government (First Tier) and State Governments (Second Tier). The taxation powers given to PRIs are wide, but doubts have been raised whether they can fully utilise these powers in an effective manner. Panchayats at all the three levels are found to be reluctant to impose taxes due to various reasons. This paper makes an attempt to review the lacunae in the existing tax administration system of collection of revenues by PRIs in West Bengal and suggests measures to rectify the loopholes. Further, it focuses on some problems in tax administration and also examines whether the PRIs at Gram Panchayat (GP) level are able to fully exploit the sources assigned to them or do they face any constraints towards fuller utilisation of present sources of revenue. This analysis mostly deals with the lowest tier of the PRIs, viz., the Gram Panchayats.

Decentralisation of powers will remain a mere slogan and panchayati raj as a rural self-government can never meet the challenges of rural life if it does not have a sound resource base. Adequate availability of funds must accompany devolution of specific functions to the panchayats. Financial autonomy is the backbone of the local governments. It determines the size of their activities and testifies to what extent decentralisation of powers has taken place. It also governs their ability to plan and discharge functional responsibilities. An affluent local government attracts men of outstanding caliber into its political and administrative sphere and commands confidence of the people as well as the government.

It, therefore, follows that a realistic approach to the study of panchayati raj as a unit of self-government must necessarily include an analysis of its revenue base.
The panchayat derives its income mainly from two sources: tax and non-tax. The tax source generally comprises certain taxes (property tax, professional tax, etc.) which are compulsory in nature and certain taxes and fees, rates, cesses, etc. (vehicle tax, registration fees, etc.) which are optional in nature. The non-tax source consists of (i) share of taxes and grants from government; (ii) loans and borrowings; (iii) revenue from remunerative assets and enterprises; and (iv) gifts and donation from the people.

There are three forms of tax from which flows a sizable income to the panchayats: (i) taxes levied and collected by the panchayats themselves; (ii) taxes raised locally but collected centrally by the government though spent on decentralised basis (entertainment tax in some states); and (iii) taxes levied and realised by the government but shared by the panchayats (land revenue).

Emphasis has always been on mobilisation of resources through self-taxation by the panchayats since that ensures greater local political responsibility and popular involvement. Apart from this, self-taxation strengthens financial self-sufficiency and reduces dependence on the state government for financial assistance. But revenue from this source is marginal and hardly contributes to attaining financial self-sufficiency. Some of the reasons generally identified are: the limited tax base, inelasticity of the local taxes, statutory restrictions, general reluctance of the panchayats to impose taxes, inadequate collection machinery, and tax evasion at large.

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