In the financial year 2020-2021 India’s indirect tax collections have increased by 12% to 10.7 trillion rupees (USD 142 billion), which can be an important factor for the government budget amidst the Covid-19 pandemic and its potential negative influence on the economy. The authorities have released data that demonstrates that the increased taxes stem from the higher excise, and service tax collections resulting from the increased levies on petroleum goods and increased collection of past debts.

According to the most recent government report, custom collections increased by 21% while collections based on higher levies for fuel rose by 59% in the financial year 2020-2021. Goods and services tax (GST) was the only category which saw a decrease in the amount collected (-8.5%) compared to last year. The lower amount of GST collection is largely attributed to the reduction of India’s economic activity following the Covid-19 outbreak.

Additionally, taking into account an increase in the government revenues from the direct taxes by almost 5%, the authorities have realized even more revenue to curb the effects of the Covid-19 pandemic than predicted in the Union Budget which was presented at the start of February 2021. The authorities were expecting a fiscal deficit of 9.5% of GDP in the financial year 2020-2021, with their estimates based on lower tax collections and higher expenditures to mitigate the effects of the pandemic. However, with the improved tax revenues, the fiscal deficit may be expected to be lower than forecasted.

As indicated by Mr. Ajit Kumar, Chairman of the Central Board of Indirect Taxes and Customs, the sectors that have experienced the strongest economic recovery after last year were automotive, chemicals, electronics, metals, and the cement industry. Economists predict a whopping 11% growth in the financial year starting from April 1^st and an increase in additional foreign direct investments attracted to India.

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