THIRUVANANTHAPURAM: The state economy has demonstrated a dramatic turnaround, taking even finance minister Dr Thomas Isaac by surprise. Tax growth, which hit a record low of minus 2 per cent in December 2016, has virtually overnight bounced to a lively 18.95 per cent in January. While tax collection during January 2016 was Rs 2,482.91 crore, it swelled to 12,941.94 crore in this January. The finance minister, who had furiously argued that the demand shock created by demonetisation had dried up state revenues, sounded incredulous.
"It could be that entities that had postponed their tax payments earlier had paid all of it in bulk this time or it could also be the increase in non-VAT revenues like sales tax from petroleum products," he said. "I need to look at the figures before arriving at a conclusion," he said. Still, Mr Isaac said that there was no way that VAT revenue would go up. The finance minister's instinct was bang on. The growth in VAT collection has indeed fallen; from 9 per cent in December it fell to four percent in January.
The January spurt is mainly on account of non-VAT tax revenue, which has grown by 39 percent. This growth has been fuelled mostly by liquor sales. Last January, revenue from liquor was ` 444 crore. This January, it ballooned to Rs 731.43 crore. This difference is the result, not of a boost in sales, but of a book-keeping exercise. "The former UDF government had taken an advance tax from Bevco in December 2015 and when accounts were settled next month, in January 2016, this amount was deducted," a top Finance Department source said. Sales tax from petroleum products has also shown an increase.
"One major change in consumer behaviour after demonetisation was the larger volume of fuel intake by motorists. This could have been the result of the uncertainty triggered by the withdrawal of notes," Mr Isaac said. "Therefore, there is nothing for me to gloat about in this sudden bounty," he added. Nonetheless, Mr Isaac conceded that the buoyancy in revenue growth would "avoid a total collapse". With revenues showing a negative trend, Mr Isaac had just the other day shared his deep concern that expansion plans in the coming Budget could send the revenue deficit spiralling out of control.