Home >News >India >Covid-19 will hit tax collections: Advisory Council tells Finance Commission

Finance Commission met its Advisory Council on Friday, which felt Covid-19’s impact on the economy is very uncertain.

The council feels Covid-19 will hit tax collections and may hit tax mop-up asymmetrically. A new debt consolidation path was also discussed at the virtual meeting.

The Fifteenth Finance Commission (XVFC) had virtual meetings with its Advisory Council on 25 and 26 June, 2020 and discussed various issues confronting the Commission now. The meeting, chaired by N. K. Singh, Chairman XVFC was attended by all members and senior officials of the Commission. From the Advisory Council, Krishnamurthy Subramanian, Sajjid Z Chinoy, Prachi Mishra, Neelkanth Mishra and Omkar Goswami and special invitee Rathin Roy attended the meeting on 25 June, 2020. Arvind Virmani, D K Srivastava, M Govinda Rao and Sudipto Mundle from the Advisory Council, along with Shankar Acharya and Pronab Sen, attended the meeting on 26 June, 2020. These were the third set of meetings with the Advisory Council, after the submission of the report of the XVFC for the year 2020-21 and second such meeting since the onset of national lockdown due to Covid-19.

The members of the council felt that since they had met the Commission in April, national lockdown was further extended till end of May and now restrictions are being lifted in a phased manner resulting in gradual resumption of economic activities. However the impact of the pandemic on the economy and on the fiscal positions of the Union and State Governments is still highly uncertain. Many analysts and think-tanks have reduced their GDP growth projections for 2020-21. Due to ongoing social distancing measures in place and local level restrictions in many places, supply chains are not yet fully restored, which affects recovery process, the members said.

The Advisory Council also discussed the adverse implications of constraints in the economy on tax revenue collections of the Union and State Governments. While noting that tax collections can be considerably affected by the pandemic, some members of the council indicated the impact of the pandemic on tax collections may also be asymmetric.

"Implications on the deficits and debt of the general government was discussed, along with constraints and possibilities for establishing a path for consolidation of public debt, post the pandemic. On the expenditure side, governments will have substantial expenditure burden on account of health, support to poor and other economic agents," the Finance Commission said.

The members of the Advisory Council expressed that there is massive uncertainty going forward and appreciated the tall challenges for the Commission in designing fiscal transfers for the five-year period.

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