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States in Dire Straits


Byte on while staying informed about the latest tax updates.

States in Dire Straits

Hey,

Food for thought… India witnessed a liquor sale of hundreds of crore across states on Monday and Tuesday…Do think India should still rank 49 on the poverty index?


This Week’s Dose-

  • States in dire straits
  • Will alcohol walk the ‘Tobacco Tax Path’ in times of Covid-19
  • Petrol and diesel – a HISTORIC increase in excise
  • Deadlines – ‘EXTENDED’

States in dire straits


What is happening?

The state finances have been dwindling. India has been under lockdown since March 25. Sale of liquor and tobacco has been shut since then. 

The states have not been able to receive revenue from liquor cess. This is a major source of revenue for state governments across the country. Karnataka, for example, is looking at an offset of INR 2600 crore losses it suffered from excise revenue lockdown.

Another major source of revenue for states is petrol and diesel which comprises 20 – 30 percent of revenue for state governments. Movement of vehicles, inter state transport, etc have been shut down due to the pandemic. This had a rollover effect on the sector leading to 60 percent drop in sales.

The cash starved states of India…do they have the means to boost revenue collections?

The brighter side

In the past state governments had lobbied hard to keep liquor and auto fuel prices out of Goods and Services Tax (GST) as they could have a tab on revenue collection from these sources. Hence State Governments can boost their revenue during times of economic and financial crisis.

What are we looking at

The financial health of states, which was already deteriorating due to the economic slowdown, worsened due to the national lockdown. Revenue gaps, borrowing limits and the risk of falling fund transfers from the central government is giving a sense of helplessness amid the pandemic.

Punjab FM, Manpreet Singh Badal in a webinar hosted by the Gulati Institute of Finance and Taxation (GIFT) Kerala, cautioned that the combined fiscal deficit of central & state governments this FY could touch 10% of GDP. And this would exclude any extra spending to fight back the pandemic.

The economy has been brought to a grinding halt…


Will alcohol walk the ‘Tobacco Tax Path’ in times of Covid-19


Booze flows, chaos follows

Massive rush was seen outside liquor stores which opened for the first time since the lockdown. Serpentine queues were witnessed, social distancing norms were flouted. The decision to reopen the liquor shops was made keeping in mind to reboot the economy. States saw sales worth hundreds of crore in just 2 days. States like Uttar Pradesh, Haryana and Karnataka saw the maximum sale.

Special ‘corona’ fee

The liquor industry contributes an estimated INR 2.5 trillion a year to state governments by way of excise duty and in some states as value added tax. Bulk of their tax outgo goes to state governments as liquor is a state subject.

State governments seem to have gained in terms of revenue. There has been a hike in the prices and tax everywhere. Delhi has imposed a 70 percent ‘corona fee’ on all categories of liquor. Andhra Pradesh on Tuesday hiked the prices of liquor by 50 percent, a day after imposing a 25 percent increase. This takes the overall hike in liquor price in the southern state to 75 percent. Karnataka government to impose a 5 – 15 percent “special Covid tax” on alcoholic beverages on the lines of Delhi and Andhra Pradesh.

The Tax Path…

Utility of goods has been a key criteria guiding indirect tax policies of central and state governments. Thus, polluting fossil fuels like petrol and diesel, sin goods like liquor cancer causing tobacco & cars with high displacement engines considered to be luxury have attracted high taxes. Sports utility vehicles, tobacco and aerated drinks are on the highest GST slab of 28 percent, which also attract a cess. Liquor, which is outside GST, is subjected to state excise duties heavily. 

Looking at the recent developments, alcohol might be traversing the Tobacco Tax Path…


Petrol and diesel – a HISTORIC increase in excise


Petrol and diesel - a HISTORIC increase in excise

On Tuesday, the Government raised excise duty levels on petrol and diesel prices by 30 percent, taking up the retail prices of auto fuel to almost 70 percent. This was aimed at soaking up the benefits of a sharp fall in crude prices. Sadly the consumers won’t be impacted as state run oil companies were asked to adjust the impact against their hefty margin.

Let’s do the Math

As fuel prices are out of GST, raising duties is easier for both centre and states.

With a rise in VAT on petrol and diesel, the state tax rate on the two has risen to INR 16.44 and INR 16.26 respectively. The increase in excise duty further jacked up the prices by INR 10 and INR 13. So the total tax component (centre and state in Delhi) is INR 49.42 on petrol and INR 48.09 on diesel. Compare this with the base price of the two products – which is INR 17.96 a litre for petrol and just INR 18.49 a litre for diesel. Together with central and state taxes, freight and dealers commission, the price of petrol on Wednesday was at INR 71.26 a litre while diesel’s selling price was INR 69.39 a litre.

The tax load is clearly visible now…


Deadlines – ‘EXTENDED’


Finally!
Ministry of Finance announced the due date to file GSTR-9 (Annual Return) and GSTR-9C (Reconciliation Statement) for the Financial Year 2018-2019 has been extended to September 30, 2020 via notification number 41/2020- Central Tax.

File your GST return online.


Crazy Tax Stories!


Johnstown, Pennsylvania was devastated by a flood that killed nearly 2,000 people in the late 19th century, and in 1936 another flood damaged the town. That led to the state of Pennsylvania passing a tax on alcohol, the proceeds of which would be used to rebuild the city. By 1942, enough money was raised to rebuild Johnstown, yet the tax exists to this day, and brings in around $200 million a year for Pennsylvania.


Byte of the Day


“I think of lotteries as a tax on the mathematically challenged.”

– Roger Jones



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