Vijay Led TVK Government Plans Tax Reforms Ahead of Maiden Tamil Nadu Budget
The Tamilaga Vettri Kazhagam (TVK) government, led by C Joseph Vijay, is finalizing its fiscal strategy in Chennai ahead of presenting its maiden Tamil Nadu budget later this month. The upcoming budget will focus on improving tax collections through stricter enforcement, plugging revenue leakages, reforming state-owned enterprises, and curbing wasteful expenditure while protecting welfare schemes.
Economists, policymakers, and industry experts agree that Tamil Nadu's fiscal revival depends on stronger tax administration and better-quality expenditure. The state, which is India's second-largest state economy, has continued to underperform some of its peers in GST collections. In FY26, Tamil Nadu collected Rs 72,008 crore in GST, compared to Rs 87,256 crore collected by Karnataka and Rs 80,823 crore by Gujarat.
Nithin Chandra, a senior partner at Kearney, stated that the state's economic strength should naturally translate into higher tax revenues, attributing the current performance to weak enforcement and leakages. Chandra pointed out a 16-percentage-point gap between the services sector's share in the Gross State Domestic Product (53.6%) and its contribution to GST collections (37.8%). He estimated that closing half of this gap could generate an additional Rs 12,000 crore to Rs 15,000 crore annually.
To address these issues, the TVK government has started strengthening audit and scrutiny mechanisms. Plans are underway to introduce faceless tax assessments, tighten enforcement, and improve compliance. Dr. A. Narayanamoorthy, Head of the Department of Economics and Rural Development at Alagappa University, noted that plugging leakages in liquor sales, property registration, and mining administration represents significant revenue opportunities.
Finance Secretary M. A. Siddique stated that these administrative reforms could substantially improve collections without increasing tax rates. Additionally, the government expects savings through a transparent procurement model and higher mining revenue under a revamped framework.
Another key focus is reforming state-owned enterprises, particularly in the power and transport sectors, which face mounting debt. Former RBI Governor Dr. C. Rangarajan emphasized the need to improve the operational efficiency of these public sector undertakings to help them contribute to overall revenue. The government has already directed individual public sector undertakings to prepare restructuring plans.
Tamil Nadu ranked 13th among 18 major states in NITI Aayog’s Fiscal Health Index 2026, reflecting low capital expenditure and rigid spending patterns. Economists argue that the government must balance welfare spending with productive investment, suggesting better targeting of welfare schemes to reduce the need to borrow for recurring expenditure.
