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Amritsar, NFAPost: Sales tax revenue of states on petroleum products is expected to grow by 7-9% in financial year 2020-21 (Apr-Mar), despite the impact of Covid-19, on the back of rebound in volumes, benefits of the increase in central and state taxes, and firm crude oil prices, rating agency CRISIL Ratings said.

“If these drivers sustain, there could be a 7-9% on-year rise in sales tax receipts to 1.96 trillion rupees, despite an expected ~25% fall in collections in the first quarter on-year,” the agency said in its latest report.

The first quarter of this fiscal saw petrol and diesel sales volume fall by a third on-year because of the Covid-19 induced lockdown, but with the economy slowly unlocking and industrial and commercial activities clawing back, vehicular traffic has started to improve, said CRISIL Senior Director Manish Gupta.

The combined monthly volumes of petrol and diesel account for 90% of sales tax collections from petroleum products for states. The sales tax gets computed on the value of fuel after adding the excise duties, which are at a higher level now.

Central excise duty was raised in March and May, and additionally many states have directly raised their sales tax rates by 1.5-1.8 rupees per ltr.

CRISIL said the sales tax on petroleum products contributes a 15% to states’ own tax revenues and hence, the expected recovery in collections should offer a breather to finances, that has been under pressure due to the pandemic and resultant lockdown. 

The report noted that the volume of petrol and diesel dipped to 43% in April due to the lockdown, but has since doubled up to 85% in June, and 83% in July. 

“If the economic activity rebounds to pre-pandemic levels by November, the annual volume decline will be restricted to 11-12% this fiscal,” the report said. 

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