The value-added tax collected by Delhi government in February indicates that the adverse impact of demonetisation on tax revenue visible in December and January may have diminished. The VAT mop-up of Rs 1,781 crore in February was 10.62% higher than Rs 1,610 crore collected in the same month last year.
With 15 days left in the current financial year, state government has managed VAT collection of Rs 19,790 crore against last fiscal’s Rs 18,625 crore. Officials are hopeful of March collections reflecting the trend of February and bring the total for the year close to or beyond the 2016-17 target of Rs 22,000 crore.
After taking in Rs 2,023 core in November 2016 — 15.59% higher than in November of the previous year and more than the monthly average of 8-10% till then — VAT collection saw a dive for the first time of minus 4% over the same period in 2015. January provided a marginal recovery of year-to-year growth of 1.72%. VAT earnings were hit also by the global decline in the construction sector and in iron and steel.
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The increase in November has been attributed to the higher number of transactions between October 21 and November 21, including pre-Diwali and festival period sales. Also, since most traders habitually deposit VAT in the last days of the monthly cycle, tax amounts were presumably deposited after the demonetisation process began. The spike was also attributed to the fact that traders may have chosen to deposit tax in old currency by showing pre-dated sales.
After these activities, however, the removal of high-value currency notes from the monetary system began to manifest in reduced cash flow and a massive decline in cash-based transactions that attract VAT. The reduced cash flow impacted the largely cash-based manufacturing and trade sectors. December reflected the adverse impact at its peak when VAT collections went into negative mode.
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It wasn’t without grounds that on March 8, during the presentation of the budget for 2017-18, the state government blamed demonetisation for coming in the way of Delhi’s economic growth. It claimed demonetisation-hit tax revenues and had an adverse effect on the proposed spendings on development projects.
In his budget speech, deputy chief minister Manish Sisodia said demonetisation forced the government to reduce the Plan outlay for 2016-17 from Rs 20,600 crore in the budget estimates to Rs 16,500 crore in the revised estimates. “We would not have reduced the Plan outlay by Rs 4,100 crore had demonetisation not been executed,” Sisodia declared.