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Fuel price cut: Neither fair nor reasonable to expect States to reduce taxes, says Tamil Nadu FM

BL Chennai Bureau | | Updated on: May 22, 2022
Palanivel Thiaga Rajan

Palanivel Thiaga Rajan | Photo Credit: JOTHI RAMALINGAM B

There is a strong case for the Union government to further reduce the taxes: Palanivel Thiaga Rajan

Following the Union Finance Minister Nirmala Sitharaman’s announcement of reducing taxes on petrol and diesel, Tamil Nadu Finance Minister Palanivel Thiaga Rajan said the Union government has finally heeded the repeated requests of the Tamil Nadu government to reduce the fuel taxes.

In a statement issued by him, the State Finance Minister said that the prices were egregiously increased by the Centre from 2014 to 2021. However, he added that it is neither fair nor reasonable to expect States to reduce their taxes.

Though the Centre has reduced the taxes, it is still higher than the 2014 rates by ₹10.42 per litre for petrol and ₹12.23 per litre for diesel. There is a strong case for the Union government to further reduce its taxes, Rajan said in the statement.

‘No consultation with the States’

“The Union government had never consulted the States when they increased the taxes on petrol and diesel multiple times. The exorbitant increase in taxes by the Union government has been only partially reduced through their cuts and the taxes continue to be high as compared to the 2014 rates,” the statement said.

The State Finance Minister also tweeted about the issue.

The Centre announced, on Saturday, that excise duty on petrol will be reduced by ₹8 per litre and on diesel by ₹6 per litre. Rajan, in the statement, said that even before the Centre had first reduced its taxes on petrol and diesel in November 2021, the Tamil Nadu government had cut the VAT on Petrol in August 2021. That cut resulted in a relief of ₹3 per litre to the people of Tamil Nadu.

The State government will incur a loss of ₹1,160 crore annually due to this reduction. Yet this was done, despite the financial strain inherited from the previous government to reduce the burden on the people of Tamil Nadu, Rajan said. It is to be noted that even during the 2006-11 regime, the DMK government had cut taxes on petrol and diesel for the welfare of the common man.

Rise in the last seven years

On the other hand, the Centre’s levies on petrol have gone up substantially in the past seven years.

Though the revenue to the Union government has increased manifold, there has not been a matching increase in the revenues to States. This is because the Union government has increased the cess and surcharge on petrol and diesel while reducing the basic excise duty shareable with the States.

In August 2014, the Union government’s taxes on petrol were ₹9.48 per litre, while the taxes on diesel were ₹3.57 per litre.

Prior to the reduction of taxes on petrol and diesel by the Centre in November 2021, the levy of tax, including cesses and surcharges by the Union government on petrol was ₹32.90 per litre and ₹31.80 per litre on diesel. This was reduced to ₹27.90 per litre for petrol and ₹21.80 per litre for diesel. Now, it has further been reduced to ₹19.90 per litre for petrol and ₹15.80 per litre for diesel.

The Union government’s reduction in taxes that was announced on March 3, 2021 has caused an additional loss of about ₹1,050 crore in annual revenue to Tamil Nadu. The recent reduction will cause a further loss of around ₹800 crore in annual revenue to the State. This will put a huge strain on the finances of the States, which were already burdened due to the additional expenditure incurred by them for Covid relief activities

Published on May 22, 2022
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