New Delhi: Sales tax collection of states on petroleum products is set to recover sharply, Crisil Ratings said on Thursday.
According to the rating agency, augmentation in the collection will be driven by a rebound in volume, full impact of an increase in Central and state taxes, and firmer crude oil prices.
“If these drivers sustain, there could be a 7-9 per cent on-year rise in sales tax receipts to Rs 1.96 lakh crore, despite an expected 25 per cent fall in collections in the first quarter on-year,” it said in a statement.
As per the statement, the combined monthly volume of petrol and diesel sales nearly doubled from 43 per cent in April to 85 per cent in June, though it dipped marginally in July (83 per cent on-year).
“Another kicker to improving collections is higher excise duty. Central excise duty was raised in March and May 2020. An increase in excise duty increases the taxable value of petrol and diesel for the levy of state sales tax,” Ankit Hakhu, Director, Crisil Ratings, was quoted as saying in the statement.
“This higher taxable value of the fuel is providing additional sales tax of Rs 3 per litre to states on a weighted average basis. In addition, many states have directly raised their sales tax rates, too, by Rs 1.5-1.8 per litre for the current fiscal.”
Similarly, crude oil prices, which averaged more than $60 per barrel last year and declined to $30 per barrel in the first quarter, have rebounded to $40 per barrel.
“Sustenance at these levels will support state receipts. Typically, a $10 increase in the crude oil price provides an additional Rs 1 per litre of fuel sold to the state exchequer,” the statement said.
“Sales tax on petroleum products contributes a sizeable 15 per cent to states’ own tax revenues. Thus, the expected recovery in collections should offer a breather to state finances, which have been under pressure since the lockdown began.”
The calculus presumes a gradual normalisation of economic activity and no further lockdowns.
“However, the pandemic has been an unprecedented event and the duration and extent of its impact are unfathomable at present,” the statement said.
“Any future lockdowns to control the spread of fresh infections can hard-brake recovery in sales volume and sales tax recover collections thereof.”