Reportedly 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 and 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. Other states have either followed the suit or considering a similar move. Some like haryana, tamilnadu and Nagaland have also imposed an additional Covid-19 cess on petroleum fuels.
Reports suggest that states are mulling other options to increase their revenue collection. Options on the table include raising entertainment tax, municipal taxes, panchayat cess, vehicle registration fee and property tax. These taxes are to be paid by common people, individual earners. And, this is happening at a time when the businesses are finding it difficult to maintain the same employment level as pre-coronavirus period. Flight of workforce is likely to delay economic recovery. Manufacturing and services sectors are likely to take more time in returning to their previous output potential.
