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PM urges Oppn states to reduce VAT on fuel

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Prime Minister Narendra Modi urged several Opposition-ruled states on Wednesday to cut taxes on petrol and diesel in order to reduce the economic burden on citizens, citing similar reductions by the Union government earlier — an appeal that sparked a furious war of words and statistics between the Centre and opposition parties.

Modi, speaking during a meeting with chief ministers on the issue of Covid-19 via a videoconference, said it was in the interest of cooperative federalism to do so since many states had reduced their component of the levy.

“I request these states to do now what they should have done in November. By reducing the VAT you can lower the burden faced by the residents,” he said, calling it an “injustice” that consumers in some states paid more.

Modi named Maharashtra, West Bengal, Telangana, Andhra Pradesh, Tamil Nadu, Kerala, and Jharkhand, saying they did not reduce taxes on fuels “for some reason”. All these states are ruled by the Opposition, and ministers and political parties in power in these regions hit back at the Centre, with many saying the Union government had merely rolled back a portion of taxes it had itself raised when global oil prices plummeted at the start of the pandemic.

The Union government, on November 3, reduced central levies on petrol by 5 a litre and diesel by 10 a litre.

“This [not reducing VAT] is not only injustice towards the people of the state but harms the neighbouring states also,” Modi said, adding that states like Karnataka and Gujarat undertook the tax reduction for the welfare of the people despite revenue losses while their neighbouring states earned revenue by not reducing the tax. “I urge all states to work as a team in this time of global crisis following the spirit of cooperative federalism.”

He added that the Centre shares 42% of the revenue it earns through excise duties on petrol and diesel with state governments.

The PM also spoke of the fight against Covid-19, which he said was fought “with the spirit of cooperative federalism”.

“In the conditions imposed by global events, this spirit of cooperative federalism becomes all the more important,” he said, in the context of petrol and diesel prices.

Petrol and diesel rates in India have surged in tandem with a spike in global oil prices, particularly since Russia’s invasion of Ukraine.

According to a government estimate, between November and March 31, 2022, Maharashtra got 3,485 crore that it would have otherwise lost had it reduced VAT on the fuels. “The gains are calculated based on the revenue they would have foregone had they cut fuel VAT rates by the average of 5 per litre for diesel and 6 per litre for petrol done by the other states,” said a central government official, who asked not to be named.

This figure, according to the estimate, came to 1,190 crore for Bengal, 2,420 crore for Tamil Nadu, 1,475 crore for Telangana, 1,450 crore for Andhra Pradesh, 1,085 crore for Kerala and 665 crore for Jharkhand. For Delhi, this came to about 175 crore during the period on diesel as the state reduced VAT on petrol.

Current state levies on petrol and diesel in Gujarat are 13.7% (plus 4% cess on town rate) and 14.9% (plus 4 % cess on town rate) respectively, according to Petroleum Planning and Analysis Cell (PPAC), the data keeper of the Union oil ministry. In comparison, levies in Maharashtra (Mumbai, Thane, Navi Mumbai, Amravati and Aurangabad) on petrol are 26% (plus .10.12/litre additional tax) and 24% (plus 3.00/litre additional tax) on diesel. Rest of Maharashtra have different tax structure — 25% VAT (plus 10.12/litre additional tax) on petrol and 21% VAT (plus) 3.00/litre additional tax) on diesel.

According to the official quoted above, the central government lost approximately 8,700 crore per month after it announced central excise cuts on petrol and diesel on November 4. “Between November 2021 and March 2022, the states that cut their VAT on fuel have in total foregone revenue amounting to 15,969 crore. Of this, 11,398 crore has been foregone by the BJP states alone,” the official quoted above said.

“However, seven states— Maharashtra, West Bengal, Tamil Nadu, Telangana, Andhra Pradesh, Kerala and Jharkhand — have not cut their rates so far. Rough calculations show that, by not cutting their taxes on fuel, these states have earned an extra approximately 11,945 crore,” he said.

To be sure, since the beginning of the pandemic in March 2020 and for the next 11 months, excise duty on petrol and diesel went up by 43% and 68.8%, and Opposition parties have accused the Centre of gaining when global crude oil prices were low.

The Opposition on Wednesday demanded the Centre provide more relief by reducing taxes on petrol and diesel. Thomas Isaac, former finance minister of Kerala and member, Central Committee of Communist Party of India (Marxist), said in a tweet: “PM Modi,who ruthlessly raised tax on petrol 3.5 times and diesel by 9 times and is unwilling even in this period of inflation to roll back the entire additional tax he imposed, blames states for not reducing VAT tax on fuel. Elementary sir, we didn’t raise our tax rate as you did.”

The Congress attacked the Prime Minister saying that the central excise duty during the UPA government was much lower than what it is under the current regime and PM must roll it back.

“Modiji, no criticism, no distractions, no Jumlas! Excise Duty during Congress Government – Petrol – 9.48/litre and Diesel – 3.56/litre. Modi Government – Petrol – 27.90/litre and Diesel – 21.80/litre. Please roll back the excise hike of 18.42 in Petrol and 18.24 per litre in Diesel,” Congress leader Randeep Singh Surjewala tweeted.

“Pl give an account of 27,00,00,00,00,00,00 ( 27 Lakh Crore) collected by BJP Govt from Tax on Petrol & Diesel,” he said in another tweet.

The official quoted above, responding to these statements, said the central government shared funds from the excise duties with states. “Not only has the Modi government devolved more to the states than it initially budgeted, but it also spent an unprecedented amount on developmental expenditure, including on subsidies for the poor and capital creation, which has a multiplier effect on the economy,” the person said.

To be sure, central excise duty is made up of several cesses and surcharges. The 42% share formula applies only to one particular part of this — the basic excise duty — which, according to latest data by the Petroleum Planning & Analysis Cell, comes to 1.4 per litre.

According to Reserve Bank data, states received 23,880 crore from the Centre as the share in excise duty mop-ups, which comes to about 16.8% of the 4 lakh crore collected by the Union government in excise duty, as per the Budget at a Glance document

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