‘In­crease in ex­cise duty has up­set the equi­lib­rium’

FrontLine - - COVER STORY -

Ex­cerpts from an in­ter­view with Ker­ala Fi­nance Min­is­ter T.M. Thomas Isaac:

How do the State gov­ern­ments see the trend of very high in­crease in the price of pe­tro­leum prod­ucts?

On the one hand, this hike is re­sult­ing in an es­ca­la­tion of State gov­ern­ment ex­pen­di­tures. And there is in­creas­ing pres­sure on State gov­ern­ments to bring down VAT [value added tax] to a rev­enue neu­tral po­si­tion at least. So, on the one hand, the bur­den of in­creas­ing ex­pen­di­ture will be on the State gov­ern­ment, but there will not be a com­men­su­rate in­crease in State gov­ern­ment rev­enue. This is go­ing to have an ad­verse ef­fect on the bud­gets of the State gov­ern­ments.

Many sug­ges­tions are be­ing made for bring­ing down fuel prices. One is that the Cen­tral gov­ern­ment re­duce ex­cise duty. Two, that the State gov­ern­ments re­duce VAT. And three, pe­tro­leum prod­ucts should be in­cluded in the goods and ser­vices tax frame­work. Which of these will be a pru­dent so­lu­tion?

No State gov­ern­ment has in­creased VAT. So, there is no merit in ask­ing for VAT to be re­duced. In fact, it was the ex­cise duty that was raised, to a record level: 120 per cent for petrol and 380 per cent for diesel. There­fore, it is these hikes that have to be rolled back. Some peo­ple are say­ing: why don’t you in­clude pe­tro­leum prod­ucts in GST? This sim­ply is a ploy to post­pone the roll­back in ex­cise hike. For, ex­cept for a pass­ing men­tion,

price and add what­ever tax you want to charge. At present, the rate of tax­a­tion on pe­tro­leum and diesel prod­ucts is al­most the same as the ba­sic price,” Sen said.

An ad­di­tional fac­tor is the price of fin­ished pe­tro­leum. There is a big gap be­tween re­fin­ing costs in In­dia and abroad be­cause of cheap labour in In­dia. “So, tech­ni­cally, if you go by the cost of crude im­port, con­vert it at the present ex­change rate and add re­fin­ing costs, which is on an av­er­age Rs.1 to Rs.2 per litre and trans­port, the ba­sic price should be 30 per cent less than the present ba­sic price. Sim­i­larly, if you cal­cu­late the crude price at $80 per bar­rel and if you as­sume Rs.70 is the ru­peedol­lar rate, the re­fin­ery price will not be more than Rs.48,” he said. An ad­di­tional prob­lem that had cropped up was the de­clin­ing value of the ru­pee. When it was sta­ble, the prices of crude were com­ing down. Yet pe­tro­leum prices were cal­cu­lated as per the fin­ished prod­uct in the in­ter­na­tional mar­ket. Pe­tro­leum prices were on a par with in­ter­na­tional prices. The pric­ing mech­a­nism plus ag­gres­sive tax­a­tion had added to the costs. the GST coun­cil has never dis­cussed this is­sue se­ri­ously. The rea­son is that if it is brought un­der the GST, the ex­ist­ing VAT would have to be re­duced dras­ti­cally and the States would have to be com­pen­sated. The States’ present com­pen­sa­tion cess would be to­tally in­ad­e­quate. We will need to put in place ad­di­tional cess to com­pen­sate this. And this will re­quire ne­go­ti­a­tions. That is go­ing to take time. Let us say, at a time when crude oil prices were fall­ing, the Cen­tre raised the ex­cise duty, say­ing it is not go­ing to af­fect the con­sumer be­cause the price level would be main­tained. Should not the re­verse take place now? Crude oil prices are ris­ing and so they should re­duce the taxes. That is the log­i­cal course. That is the so­lu­tion to the prob­lem.

There is an ar­gu­ment for rais­ing the ex­cise duty and keep­ing it that way, claim­ing it is needed for de­vel­op­ment and so­cial sec­tor spend­ing. This is what the States also say with re­gard to VAT rev­enue.

There is no cor­re­la­tion be­tween the in­crease in pe­tro­leum tax rev­enues and the so­cial ex­pen­di­ture of

CONGRESS SUP­PORT­ERS the Bharat Bandh. at a rally in Kolkata dur­ing

KER­ALA FI­NANCE Min­is­ter T.M. Thomas Isaac.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.