On 21 April, Assam increased the rate at which it taxes petrol and diesel. It issued a notification that in effect raised the price of petrol from Rs 71.61 to Rs 77.46 per litre and of diesel from Rs 65.07 to Rs 70.50 per litre. With the state under lockdown and economic activity effectively coming to a halt, this was one of the few ways in which Assam could raise money to pay salaries of government employees or fund health expenditure in fighting COVID-19. “The state relies heavily on taxes from petroleum and that is the reason for the increase, because there are no other sources of revenue, even in a post-lockdown scenario,” an official in the finance department of Assam, who requested anonymity, told me.
There are two ways in which Assam earns revenue from petroleum. The state is one of the few in India which has onshore oil fields. Royalties on oil drilled in Assam contribute around two thousand and five hundred crore rupees per year to the state’s revenue, according to the official, but since they are benchmarked to international crude oil prices, which have sharply fallen since the COVID-19 outbreak, this revenue stream has slowed to a trickle. The other is Value Added Tax, or VAT, on sales of petrol and diesel, which the official said used to contribute Rs 3,000 crore to the state exchequer. The lockdown has virtually dried up this revenue stream as well.
Sales tax collection—taxes from petroleum constitute a major portion of this—contributes 23 percent to Assam’s tax revenue. A collapse of almost a fourth of the tax base can be catastrophic for the state exchequer. Assam is not unique; all states in the Indian union have undergone a similar collapse in tax revenues due to the COVID-19 induced lockdown. At the same time, states have had to suddenly ramp up spending on medical infrastructure.
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