It is to be understood that threat posed by the virus is not likely to be disappear any time soon, thus , the governments now begin to relax all the restrictions during the lockdown as much as possible.
The reason being, of course the government’s cash balance is going to worry them and they will to have to think of raising revenues. The Central Government had formed a team to develop a policy paper that was christened “Fiscal Options & Response to Covid-19 Epidemic” (FORCE).
The team had recommended levy of a “Covid Cess”, which is a super tax on the super-rich and a revival of the inheritance tax. Unfortunately, this fact was leaked, leading to the resignation of some of the team members. But when the reality of dwindling tax revenues sinks in, the recommendations of FORCE may well become a reality.
The Central Government faces a dilemma which is not at all recommenced to have at this point in time. Kerala levies a flood cess to get a extra income to rebuild the State and this is not linked to GST. The Haryana government is considering a variable “Covid Cess” ranging between 2% and 20% on liquor to support the areas or institutions which are adversely hit by the pandemic. Haryana has suffered monthly revenue losses of ₹6,000 crore, due to the coronavirus triggered lockdown.
If the Central Government does not pay up the dues soon, other State governments may also be tempted to include local levies. Soon, Maharashtra may get back to levying some sort of octroi and Karnataka may opt for a version of its entry tax, both were the major cashflows in the pre-GST era.
For the financial year ended 31st March 2020, total GST revenues were ₹12,22,131 crore averaging ₹1,01,844 crore per month. The top five States in terms of generating GST revenue have been Maharashtra, Karnataka, Gujarat, Tamil Nadu and Uttar Pradesh. Prior to GST’s launch, there was a plan to levy a 1% special GST in manufacturing States such as Maharashtra and Tamil Nadu.
It is clear that the only viable solution before the Government currently would be deficit financing i.e. borrow from the international market, monetise the economy with cash and push banks to lend. As the experience of the RBI , banks are still reluctant to borrow from the RBI and lend to others.
The taxpayers may not protest the levy of a Covid Cess as everyone right now knows the situation of economy very well. Under GST, they would only seek a set-off of the cess paid from their output taxes. A cess of 2% for two years with a set-off option should be perfectly suitable with most of the taxpayers.