As India walks on the exit route from coronavirus lockdown, taxes have started soaring. With the second duty hike – two of the steepest hikes — on petrol and diesel during coronavirus lockdown, India now has the highest taxation on the fuels. It followed increase in taxes on liquor by some states.
The first two phases of nationwide coronavirus lockdown caused an acute liquidity shortage in India’s economy. Revenue collection for both state and central governments became negligible.
This is why states were clamouring for relaxing liquor sale norms. Liquor is an important source of earning for both the states and the Centre.
It is estimated that the central government earns Rs 2.48 lakh crore from excise duty on liquor annually. Income of states vary but for all of them liquor is among the top earners. So is petroleum. Tax increase on these two was being anticipated as the governments were running out of cash.
The Centre was reporting less than expected collection of revenue through 2019 as the economy was on a downward spiral. Its GST as well as direct tax collections were falling short of targets. GST collection has suffered futher due to coronavirus lockdown.
Businesses found it difficult to file returns. They have got an extension now while the government has deferred the release of GST collection figures for April. But it is expected that April collection would be much lower than March’s earning of Rs 97.6 thousand crore, falling short of the minimum target of Rs 1 lakh crore.
This explains why the states rushed to increase tax on alcohol as soon as they got the permission to allow liquor sale. Andhra Pradesh announced hike in liquor prices by 25 per cent and 50 per cent on two successive days this week.
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