Revenue of India’s top ten states is set to exceed the pre-pandemic levels on account of rise in tax collection on petroleum products, according to a Crisil report. “We expect sales tax revenue for states to increase 30 per cent this fiscal from FY20 levels, even as fuel volume remains 2-3 per cent lower than the pre-pandemic levels.
The price of crude oil is seen hovering at $70 per barrel on average this fiscal,” said Manish Gupta, senior director, Crisil Ratings. These states include Maharashtra, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Telangana, Rajasthan, West Bengal, Madhya Pradesh, and Kerala.
This also explains why both the Centre and the states are reluctant to reduce duty on petroleum products. The report stated that most of these ten states had hiked sales tax on fuel sales by 6-7 per cent or between Rs 1.5-1.8 per litre last fiscal. That, combined with the `10-13 per litre increase in central excise imposed last year makes petrol prices above Rs 100 in many cities.
For states, central taxes typically account for a quarter of revenues, state GST for 21 per cent, and grants from the Centre 17 per cent. Sales tax from petrol and alcohol contribute 13 per cent, and the rest comes from non-tax revenue, excise duty, stamp duty and others.
The Crisil report also pointed out that GST collections are expected to be marginally better than the pre-pandemic levels. “While the second wave of the pandemic may moderate GST collections in June and July, we expect a recovery to pre-pandemic levels by August,” Gupta noted. However, despite the spike in taxes, these states would still fall short of budget estimates.