Key states turn down FM proposal to cut fuel tax

Cite constraints on revenue, already hit by Covid lockdowns; ‘ball in Centre’s court’

Some of the key states have rejected the proposal to reduce taxes on fuel, citing revenue constraints, asking the Centre to take action on rising petrol and diesel prices. Earlier, Finance Minister Nirmala Sitharaman had talked of a calibrated lowering of taxes on fuels by the Centre and states, while RBI Governor Shaktikanta Das also batted for Centre-state action to stem the rise in prices.

Some of the key states have rejected the proposal to reduce taxes on fuel, citing revenue constraints, asking the Centre to take action on rising petrol and diesel prices.

Earlier, Finance Minister (FM) Nirmala Sitharaman had talked of a calibrated lowering of taxes on fuels by the Centre and states, while RBI Governor Shaktikanta Das also batted for Centre-state action to stem the rise in prices.

States have argued that cesses account for up to 70 per cent of the Centre’s taxes on fuel, which is not shared with states.

Petrol and diesel prices have been rising since February 9 and have seen 14 increases to touch an all-time high in the country amid rising international crude oil prices.

Kerala FM Thomas Isaac pointed out that since the Centre has raised taxes through the cess route, it must take action instead of asking the states to cut rates. “This is a federal government, which has consistently raised taxes for the last five years. It has raised the diesel taxes fivefold, and petroleum taxes by three times. It is very clear that they have to reduce the tax,” he said.

Isaac added no state has increased taxes. “We have an equilibrium with this tax rate on petroleum products in Kerala for a long time,” he said.

States say they are already under immense revenue stress due to Covid-19 shock. The Chhattisgarh FM is learnt to have recently turned down a proposal from the state finance department to increase taxes on petrol and diesel.

Poll-bound West Bengal has provided a ~1 relief on petrol and diesel. Its FM Amit

Mitra said since the central government takes the largest chunk of taxes, “the Centre should reduce taxes and be credible instead of talking to states. “They are earning nearly double that of states in the case of petrol and nearly three times for diesel. They have imposed a huge quantum of cess so they don’t have to share it with states. It is against the federalist principle of the country,” said Mitra.

Giving the break-up, Mitra said in West Bengal, the state gets ~18.46 per litre in taxes for petrol, while the Centre gets ~32.9, of which ~20.5 is through cess, which is not devolved to states.

In the case of diesel, state taxes ~12.57 per litre, against ~31.8 per litre by the Centre, of which ~22 is via cess.

The ~1 relief was symbolic, he said. “It is only to tell people that we care. States are not in a position to cut taxes on fuel, but the Centre must do that.”

When Modi government took office, Mitra said, the quantum of cess in the Centre’s tax revenue was less than 8 per cent. It is now 14 per cent and the RBI has projected it to rise to 16 per cent.

The Union Budget imposed an agriculture cess of ~2.5 per litre on petrol and ~4 per litre on diesel.

In May last year, the Centre had raised the road and infrastructure cess by ~8 each for petrol and diesel, and the special additional excise duty was hiked by ~2 per litre and ~5 per litre, respectively. The entire hike will go to the Centre’s coffers and will not be devolved to the states, he said.

Sitharaman at an event last week said she would initiate talks with the states and explore what could be done about taxes. “The end consumer should pay less and the burden should be less on them…”

Chhattisgarh Health Minister T S Singh Deo, who represents the state in the GST Council, said states do not have the scope to cut value added tax (VAT), but a system of a uniform VAT on fuels across the country can be discussed.