Tamil Nadu’s VAT loss Rs 3,736 crore during lockdown

CHENNAI: Tamil Nadu is set to lose Rs 3,736 crore value added tax (VAT)

revenue

during the

lockdown

period, says a study done by

PRS Legislative Research

on the finances of various state governments. It is the highest VAT loss among all states. Kerala and Andhra Pradesh also have reported high loss of sales tax/VAT revenue.


Tamil Nadu’s loss is heavy because 61% of the state’s revenue comes from VAT or non-GST sources. The state earns sales tax/VAT and excise duty from taxes on petroleum products and alcohol. Tamil Nadu is among the states that have opposed inclusion of fuel and liquor under GST net.

The study shows that there is a possible impact of 1%-point decrease in the growth rate of nominal GSDP in 2020-21.

There will be impact on state’s GST revenue as well. The lockdown has severely impacted sales and consumption of most commodities as many shops are shut and transportation is badly affected.

Liquor shops are also shut, said the study.

GST revenue growth is likely to be less than 14%. The Centre may have to provide compensation to states in this regard. However, since the lockdown is a national phenomenon, whether Centre would be able to compensate is a pertinent question. In the light of such severe stress on the revenue side, states will have to either cut their budgeted expenditure or increase their borrowings to meet the budget targets.

It is to be noted that because of the pandemic and the lockdown, states are making unforeseen expenditure in the health sector and for providing relief to people from the lockdown. With relatively less flexibility on the side of revenue expenditure, capital expenditure could see a larger cut in many states, said the study.

States’ borrowings are limited by their FRBM laws at 3% of their GSDP. If they follow certain conditions, it will get relaxed by 0.5%. States, however, need the consent of the central government to borrow money. Most states had budgeted their fiscal deficit for 2020-21 close to the upper limit. Very few states have leeway to borrow, said the study. Meanwhile, Tamil Nadu government, since the lockdown began, has floated bonds worth Rs 6,000 crore. The good news is that all of them are oversubscribed. But the bad news is that much of that may go towards payment of salary and pension in the coming months.