It infected more than 8 million people, and there were lakhs of people who died due to the pandemic. The pandemic affected the people, but it impacted several things like Personal Income Tax, corporate tax, businesses. The travel bans and lockdowns have affected people in several ways. Let us read in detail about the impact of COVID-19 on public revenue.
With the decline in growth, as said by the ADB in the Asia-Pacific region, public revenue would go down in 2020 due to the COVID-19 pandemic. Moreover, the pandemic has affected general revenues in several economies. The timings and the impact may vary from place to place. As per the extent of the COVID-19 implications and the restriction measures are taken by the government to address the issue, the country's economic exposure to the international flows, including trade and tourism, sources of government revenues, and all the measures it will take to protect the firms and households from the financial impact of the pandemic will all be significant.
Centre's Revenue
73% of the revenue, which is Rs 16.36 lakh crore, comes through these taxes. Because of the COVID-19 pandemic, lockdowns, the actual tax revenue is much lower when analyzed by the end of the year. The taxes get affected depending upon the average GDP growth in 2020-21. To know the impact on the tax revenue, the tax GDP ratio remains similar to the estimated budget of 2020-21. This is a significant loss of income due to the lockdown as many activities like agriculture, government services, and essential services have zero or even lower than average taxes.
Central Government revenue in crores:
- From the Net tax, the revenue covered is 16,35,909, and the share in total revenue is 73%.
- From the Non-tax, the revenue covered is 3,85,017, and the share in total revenue is 17%.
- From the Dividends and Profits, the revenue is 1,55,395, and the share in total income is 6.9%.
- From the Capital Receipts, the revenue is 2,24,967, and the share in total revenue is 10%.
- From the Disinvestment, the revenue is 2,10,000, and the share in total revenue is 9.4%.
Corporate taxes - State GST
The Corporate tax like state GST as 19%, sales tax/VAT as 10%, and state excise as 6% cover 35% of the revenue out of the 45% revenue that comes from the state's taxes. State GST is applied to the consumption of most goods and services within the state. While state GST is the most significant part of states' tax revenue, states do not have the power to change the rates of the taxes as for their wishes. The GST Council decides these. So, even during the lockdown, if the state wishes to increase the GST rates for the remaining part of the year, they cannot decide that. It depends on the GST council.
Sales tax/ VAT and State Excise
Now, these two taxes have been one of the significant sources of Public Revenue for states. These taxes cover 16% of the state's revenue as of 2020-2021. With the usage of GST, states can now impose sales tax only on the petroleum products like natural gas, crude oil, diesel, petrol, and fuel. Another source is alcohol, through which revenues are covered. Moreover, the lockdown majorly impacted the consumption, sales of the goods as the transportations are prohibited, and even the alcohol businesses shut down. But one of the primary sources through which the revenue is being covered are these taxes.
Changes made in the Tax Law in 2020
India made two significant changes to its tax law in 2020 due to the pandemic.
Firstly, the motive to improve tax reporting by businesses sold through the online platforms as per section 194-O has now been a part of the income tax act in India. As per this section, an online platform must subtract taxes at the rate of 1% from the total payments made to a residential e-commerce participant.
Secondly, by a non-residential business, the hope of the 6% balance imposed has been extended to online advertising.