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Coronavirus impact | Lockdown to hit state govt's finances worse than Centre

Date: 04-04-2020
Subject: Coronavirus impact | Lockdown to hit state govt's finances worse than Centre
The 21-day nationwide lockdown announced by Prime Minister Narendra Modi on March 24 to combat coronavirus will possibly affect state finances worse than that of the Centre in FY20 and FY21.

A Business Standard report states that this will happen because a bulk of any state government’s revenue comes from indirect taxes levied on fuel, automobile sales, alcohol sale, real estate transactions, entertainment industry, etc. Given the lockdown and the infection itself has frozen or reduced the momentum of most economic activities related to these for a month now, state revenues are bound to take a massive hit.

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If we compare this to the central government's revenue earnings — a lot of which come from personal and corporate income tax, and manufacturing and import of goods — we can see that the lockdown wouldn’t impact it as adversely. In fact, in all likelihood, there will be a rebound in most of these sectors once the lockdown is lifted.

Confirming this, G Chokkalingam, Founder and Managing Director, Equinomics Research and Advisory Services, said: “States’ revenues largely come from taxes on various transactions that are down adversely, affecting their revenues during the lockdown. In contrast, taxes on income and manufacturing account for a large part of central government finances.”

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Economists are expecting state governments to take a haircut on GST revenues since the lockdown has affected the sale of non-essential goods and services adversely too. According to the Reserve Bank of India (RBI) data, GST earnings were supposed to account for 43 percent of state tax revenues. The rest was expected to come from non-GST taxes including registration fee, taxes on vehicle, etc. This means, both GST and non-GST revenues of state governments will be hit in March and April.

There is a chance that some states will try recouping revenue losses through stamp duty and registration charges once the lockdown is lifted, CARE Ratings suggested. However, this step would not be sufficient to make up for the loss of an entire month’s revenue from fuel, alcohol, etc. That apart, several states are already mulling pay cut for government employees.

Source:- moneycontrol.com

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