Coronavirus lockdown: Both Centre and states gear up to bridge revenue gaps

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The novel coronavirus, or COVID-19, pandemic has upset the government's  revenue math for a major portion of FY21.

For private investment to revive and gather steam, it would take time and till then government expenditure would have to drive economic activity. In the absence of an assured revenue stream, both central and state governments are trying to generate it in a bleak economic environment.

As soon as liquor shops opened across the country after a 40-day gap, the Delhi government announced a 70 percent 'special corona fee' on alcohol prices.

Andhra Pradesh had initially increased alcohol prices by 25 percent and followed it up with a 50 percent hike in the maximum retail price (MRP) a day later.

"States have very little options. They need money to pay salaries and for other mandatory expenses. Other states would also follow suit soon. Punjab, which has the highest consumption of liquor, is also think of increasing prices," said a senior government official.

Apart from Delhi and Andhra Pradesh, states like West Bengal, Karnataka, Rajasthan and Karnataka too have increased duties on alcohol.

"Given the massive queues in front of liquor shops since May 4, the state government can hope for a robust tax collection in the immediate future, which can be channelised for funding the growing demand for testing and healthcare services during these times," said Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co.

The Centre has also hiked excise duty on petrol and diesel by Rs 10 and Rs 13 a litre to gain from the fall in international oil prices which is trading at a two-decade low.

It is expected to gain close to Rs 1.6 lakh crore in additional revenue this fiscal from the increase in excise duty on petrol and diesel. This will help make up the revenue it lost in a slowing economy and shutting down of businesses due to the coronavirus lockdown.

Together with Rs 39,000 crore in annual revenues gained from the March 14 and the excise duty hike of Rs 3 per litre each on petrol and diesel, the government stands to gain as much as Rs 2 lakh crore.

"The collections will also depend on the duration of the lockdown and the time taken for the economy to get up to speed. It is unlikely that fuel prices will increase due to the hike in excise as the additional amount of tax levied should be set-off against the sharp decline in global crude oil prices,” Bose said.