Despite compensation claims, picture is positive
With the first round of compensation claims from states coming in, the government’s expectations that revenues in the new Vat regime would only go up, may be belied. Yet, the fact that post-Vat revenues have, on average, kept pace with the historical growth rates of sales tax revenue, barring a few states like Andhra and Maharashtra, is a positive signal.
Andhra has sought compensation of Rs 193.80 crore and Bihar Rs 100 crore for Q1, and Maharashtra around Rs 340 crore for April-May alone. While the Centre has asked for some reworking of the numbers, officials have reportedly admitted that Q1 losses alone for Maharashtra and AP could cross Rs 100 crore each. It is too early to say if the Rs 5,000 crore (and a subsequent Rs 100 crore for UTs in the supplementary demand for grants) set aside for compensation, will suffice. The provision accounts for less than 10% of total sales tax revenue collections. It remains to be seen if the ground reality would match such optimistic anticipation.
Evasion attempts and confusion have both played a role here. AP, for instance, expects a revenue loss of Rs 800 crore for the year; it has found dealers suppressing sales in the state to avoid taxes. It is also understandable that states like Maharashtra, where the average sales tax rate is 18%, will incur revenue loss on account of Vat. But there’s good news as well. Karnataka’s growth in registration of new dealers of about 20% under Vat has enhanced its revenues. Delhi has the highest growth of 30% in Q1. And June was better with an average 15% growth in revenues than the average 12% in April and May for most states, when implementation became more uniform and stable. Besides, sales tax revenues have been buoyant over the recent years, and although the new system may reduce collections initially due to teething problems, post-Vat revenues are expected to grow with a broader base.
More: financialexpress.com