States’ sales tax receipts may rise up to 9% in FY21

Sales tax collections by States on petroleum products (such as petrol and diesel) is likely to recover sharply, driven by a rebound in volume, the full impact of increase in Central and State taxes, and firmer crude oil prices, Crisil Ratings said in a report.

“If these drivers sustain, there could be a 7-9% on-year rise in sales tax receipts to ₹1.96 lakh crore, despite an expected 25% fall in collections in the first quarter on-year,” it said.

“The first quarter saw petrol and diesel sales volume plunging by a third year-on-year because of the COVID-19 induced lockdown,” said Manish Gupta, senior director, Crisil Ratings. “But with the economy slowly unlocking and industrial and commercial activity clawing back, vehicular traffic has started to improve.”

The combined monthly volume of petrol and diesel sales almost doubled from 43% (of volumes a year earlier) in April to 85% in June, though it dipped marginally in July to 83%.

If economic activity rebounded to pre-pandemic levels by November, the annual volume decline may be restricted to 11-12% this fiscal, the agency said. Crude oil prices, which averaged more than $60 per barrel last year and fell to $30 in Q1, have rebounded to $40. A $10 increase in crude oil price provides an additional ₹1 per litre of fuel sold, to the State exchequer, it said.