How Covid-19 had taxing effect on Karnataka's revenue flow last year

The Covid-19 pandemic reduced the amount of commercial tax collected in the state, data shows. According to the information, commercial tax collection last year was at its lowest in seven years due to the lockdown, government sources said.

From April 2020 to February 2021, the government collected only 93.35% of the previous fiscal year’s total, amounting to Rs 49,441.95 crore.

Commercial Tax Collection

“The numbers reflect the reduction of economic activity in the state especially during the first half of the year,” a senior government official acknowledged, adding, however, that monthly tax collection figures have picked up over the course of the last three months.

April-May crisis

Just how precarious is the fall in state revenue? In April 2020, tax revenue dipped to a staggering 39.86% of the previous fiscal’s total for April, with only Rs 2,029.98 crore collected during that month. In May, which was also witness to restrictive lockdown, tax collection amounted to 60.79% of the previous total, with Rs 2,667.34 crore collected.

In contrast, the average collection usually obtained in April over the last six years is Rs 4,402.62 crore, while the figure is Rs 3,745.09 crore on average for May.

The revenue data hints at the level of the decline of economic activity in the state and the fact that it did not recover even when the state government allowed industrial activity to resume in May.

“The problem was that a major chunk of the industrial workforce had migrated to their home states, and because of this, the economy could not reactivate itself,” a government source said.

The source added that tax data is a means to gauge the scale of economic activity, because compliance in filing monthly tax is high in Karnataka.

1 million workers absent

According to the information given by Industries Minister Jagadish Shettar, while 10-20% of industries started operations within four days of being granted exemption from lockdown activities, activity suffered from the absence of nearly one million migrant workers across all sectors from commercial shops to construction.

Only in September 2020 did tax revenue bounce back to normal. The data shows that Rs 4,854.24 crore of tax revenue was collected, which is 101.14% of the previous fiscal year.

Coincidentally, the state’s first Covid-19 wave had peaked on September 23, coupled with the government’s relaxed curbs on public transport, interstate travel and public gatherings.

October peak

The collection percentage peaked in October with 118% of the previous fiscal year being collected (Rs 5,114.73 crore), while the collection amount itself peaked in January 2021 with Rs 5,639.64 crore (or 106.17% of the previous year) being collected.