COVID Second Wave: State’s Lockdown might Reduce

The Goods and Services Tax (GST) collections may see a drop of 10%-20% in May 2021 as Maharashtra and Madhya Pradesh has implemented lockdown across the state. Also, other states imposed curfew at night times to control the rising COVID cases.

Maharashtra contributed Rs.17,038 crore in March 2021 GST collections, accounting for 18.5% of state GST of Rs.91,869 crore. Also, Maharashtra is the highest contributor to GST collections.

Maharashtra’s GST collections might slack back to half of the present collections as the retailers and companies are closed. Hence, the supply-chain bottlenecks and other restrictions are set to fall the national wide GST collections by 10%-20% in May 2021. 

The immediate impact will be felt by auto, cement and other manufacturing sectors that have sent inventory to dealers who will now be stuck with no further sales. This situation will put additional pressure on working capital.

While Maharashtra and Madhya Pradesh have imposed robust restrictions to curb the increasing COVID cases, others states like Delhi, Haryana, Rajasthan, Chandigarh, Odisha and Gujarat have imposed lockdown in the night time for some districts or throughout the state.

The collections in May 2021, from transactions done in April 2021, might not be as muted as May 2020, when the lockdown in April 2020 has washed out the revenue. However, the influence would be even worse if the remaining states also impose full day lockdowns.

As the present lockdown is imposed state-specific, it will not have serious effects when compared to the nationwide lockdown imposed in 2020. These state-wise lockdowns will disrupt transport facilities, business and financial exercise in the states and hurt GST and customs collections.

Also, the physical interactions required by various revenue departments need to be reduced in this pandemic situation, leading to undue stress on the taxpayers.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in

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