Rajasthan’s gentle on the finish of a dismal financial tunnel   

In the recent past, the Rajasthan government has launched several major investigations into alleged GST and other tax evasions. This is visible in the tax collection numbers—in a recent report, Rajasthan was second after Odisha in big states showing improvements in GST collections, after recording a major increase in December 2020 compared to December 2019. The state has significantly improved compliance, with an 84 per cent compliance rate compared to the national average of 78 per cent. The reasons for this increase include the state government’s drive against fake invoices and tax evasion, as well as a timely unlocking of industries and trade from coronavirus restrictions.

The state’ collections under tax and non-tax revenues also indicate a consistent improvement in the last three months on a month-to-month basis over last year. From Rs 4,758 crore in October 2019, collections rose to Rs 5,797 crore in October 2020; similarly, from Rs 5,402 crore in November 2019 to Rs 5,829 crore in November 2020 and from Rs 5,033 crore in December 2019 to Rs 6,087 crore in December 2020. In December 2020, for the first time, monthly collections were higher than in the same month in 2019 under every accounting head—sales tax, VAT, GST, state excise, stamp and registration, vehicle tax and mining.

This comes after a poor showing in the first six months. In the current financial year, the Rajasthan government recorded a fiscal deficit of Rs 33,109 crore in the first six months, against an estimated deficit of Rs 33,922 crore for the entire year. The revenue deficit, similarly, was Rs 27,958 crore for the first six months of the current financial year against an estimated deficit of Rs 12,345 crore for the entire year. These figures were revealed by the state government in its mandatory report under the Rajasthan Fiscal Responsibility and Budget Management Act. This confirms the massive blow of the pandemic and the lockdown to the state’s financial health. The economic downturn in the first six months reflects in the very poor performance of the petroleum and transport sectors and the low collections under SGST and excise tax.

This has presented a major challenge to chief minister Ashok Gehlot, who holds the state finance portfolio and will present the budget again this year. He says that with Centre ignoring state government pleas for financial assistance to help with the coronavirus crisis, states have no option but to fall back on financial management to balance their budgets. “I have done it in the past and will do it again,” he says with a certain confidence.

A major reason for the economic jump in the latter half of the financial year was the demand that had been pent up till July, but there are some signs of recovery as well. Says Akhil Arora, principal secretary for finance in Rajasthan government: “The tax numbers have indeed improved—our financial management and focus on compliance is helping to reduce the massive adverse impact of the coronavirus.”

On November 24, anti-evasion and other officials from the state GST’s department cracked down on 26 firms in a statewide action against fake invoicing and bogus firm registrations intended to evade tax in Jaipur, Alwar, Ajmer, Jodhpur, Bharatpur, Kota, Nagaur, and other places. During the investigation, 13 of the 26 firms were found to only exist on paper, created for the purpose of fake invoicing. These firms generated a turnover of over 324 crores and availed fraudulent input tax credits worth over Rs 30 crore. Investigations are ongoing to identify the beneficiaries of these fraudulent transactions. To curb the growing menace of fake tax filings, the state government conducted investigations on over 300 firms with a combined turnover of over Rs 172 crore and collected Rs 15 crore.

Now, the focus of investigations has been on alleged evasion through different interpretations of tax norms in the service sector. Sources said one ongoing investigation involves the concept of forbearance—in the case of food delivery apps which give major discounts, the discounts are not a part of the taxable value—while another relates to issues relating to a firm’s primary place of business. Yet another case involves the solar manufacturing industry and the concept of differential taxation, which involves the total liability of around Rs 240 crore. And one investigation against a leading coaching centre in Kota raises liability of Rs 54 crore on study material supplied out of state and scholarships given to children.

Says T. Ravikant, state revenue secretary: “The Covid crisis has taught the government to manage its finances like a middle-class household. Earlier, we used to take revenues for granted. Now we are forced to count our money every day. This has resulted in tighter monitoring, better compliance and a host of measures like a hike in duties.”

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