The Hindu Business Line : Taxing the States

With the latest revision in prices of petrol and diesel threatening to become a political hot potato, the Centre is doubtless keen that it is not painted the sole villain in the public mind and, hence, the appeal to the States to lower the sales tax on these products. For added effect, the Government also persuaded the Congress-ruled States to bring the sales tax down to the extent of the additional amount that the latest hike would have fetched. That the political significance of the latest initiative was not lost on the States ruled by the Opposition parties is clear from the fact that they have uniformly rejected the Petroleum Minister's appeal for a reduction in sales tax on these two products.

But politics apart, their fiscal situation too would not have permitted of any other course. As the Rangarajan Committee noted in its report on pricing and taxation of petroleum products, the sales tax on these goods accounted for more than a third of all sales tax collected by the States and since the levy accounted for more than two-thirds of all sums raised by way of taxes, the significance of petroleum products to the States' fiscal scheme of things can well be imagined. Add to this the vast social and legacy costs they have assumed over the years, the fiscal situation does not permit of even tokenism when it comes to forsaking revenue. Even this precarious situation notwithstanding, the Centre's appeal might have at least elicited a rethink by the States had the former practised the virtue of fiscal self-denial that it is preaching the latter to undergo. As it happens, the Centre merely borrowed some more to be passed on to the oil marketing companies as IOUs to be cashed by them later. Since the Centre has a somewhat elastic capacity to borrow, the arrangement did not quite amount to a sacrifice. Certainly not, one would think, in the States minds.

For political parties both at the Centre and the States, the chicken of petrol politics have come home to roost in the wake of high international oil prices. In the beginning it was fashionable to claim that petrol is a commodity of elitist consumption and hence deserved even extortionate levels of taxation. Politicians were also emboldened by a belief that such taxation would be seen by the general public as amounting to taking money from the rich and giving it away to the poor, reinforcing their credentials as being with the poor, toiling masses. From here to using higher levies on petrol to cross-subsidise products with the tag of `mass consumption' such as kerosene, diesel and LPG, etc., was but a short step. The result? A structure of taxation in petroleum products that is grotesque, neither serving the cause of the poor nor promoting efficient economic outcomes.

More Stories on : Editorial | Petroleum | Taxation

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Taxing the States

Rediscovering India

India-Japan ties: More hay to make from the rising sun

Petrol price hike: Can States soften the blow?

What the upsurge in global capital flows indicates?

IT can make filing I-T returns easy

IT staff shortage

New I-T forms