Govt struggles with VAT growth, revenue target appears slipping

Ruchika M Khanna

Tribune News Service

Chandigarh, September 1

The negligible growth in Value Added Tax (VAT) collection in the first four months of this fiscal has sent alarm bells ringing in Punjab. 

For a state, whose 60 per cent of own tax revenue comes from VAT, the growth of just 2 per cent in VAT collections could adversely impact the state’s fiscal health.

The total VAT collected in Punjab till July this year was Rs 6,185 crore as compared to Rs 6,067 crore between April and July 2014.

The growth in VAT collection is just Rs 118 crore — which is barely 2 per cent. Punjab has set an ambitious target of increasing its VAT by almost 15.5 per cent over last year.

This now looks difficult, considering the rather slow growth witnessed in the first quarter (April-June) as well as the month of July. 

Punjab is targeting to increase its VAT collection from Rs 15,455.17 crore in 2014-15 to Rs 17,850.96 crore this year. 

The slowdown in VAT growth — which is the main growth driver for increase in revenue receipts — also means that the total revenue receipts targeted for the year will be adversely hit. 

The government hopes that revenue receipts in 2015-16 will increase by almost 10 per cent – from Rs 42,742.36 crore to Rs 46,229.24 crore — a feat that will be difficult to achieve in case of fall in VAT collections. 

With Punjab being removed from the category of debt-stressed states this year and the change in formula for sharing expenses incurred on centrally sponsored schemes (CSS) will mean that the state needs more buoyancy in its own tax revenues to keep the growth engine moving.

Though government sources maintain that the slow growth in VAT is temporary and that growth is likely to pick up in the second and third quarters (July-December) due to the festive season.

Sources in the government say that the reason for slow VAT growth in the first four months of the fiscal was the loss in VAT collected from foodgrains this year. 

The low production of wheat -– production fell by around 15 per cent this year — and its lower sales have led to lower VAT collection from foodgrain sales. The VAT from foodgrains is lower by almost Rs 180 crore over last year, say official sources. 

Officials also say that with regional VAT rationalisation — a brainchild of Punjab deputy chief minister Sukhbir Singh Badal — the leakages in VAT collection will be plugged further, thus ensuring a steady growth in VAT in the remaining part of the year.