Crisil in its latest report has said that States' revenues is set to cross the Pre-Covid pandemic level in the current fiscal (FY22), driven by higher tax buoyancy, rise in sales tax collections from petroleum products coupled with increase in grants following 15th Finance Commission recommendations. It noted that revenue of the top 10 states had plunged 600 basis points (bps) last fiscal.
According to the report, given the higher prices of fuels, revenue from this segment is set to grow 50 percent to 30 percent in the current financial year from 20 percent it clipped last fiscal, even though the overall volume will fall. The tax on fuels constitute 10 per cent of the revenues of states. It can be noted that despite petrol crossing the Rs 100 mark in many states and also diesel in some places, the Centre and the states have not lowered the taxes on these fuels. In fact, almost 65 per cent of the retail prices of these fuels are made up of VAT as petroleum products are not under the GST.
The report further said aggregate Goods and Services Tax (GST) collections, which account for a fifth of the states' revenues, have recovered well in the fourth quarter of FY21 as economic activity sprung back. The momentum continues this fiscal, with April and May collections averaging Rs 0.93 lakh crore (April being the highest ever at Rs 1.41 lakh crore), marking an 11 per cent growth over fiscal 2020 so far. While the second wave of the pandemic may moderate GST collections in June and July, it expects a recovery in GST mop up to the pre-pandemic levels by August.