The Prime Minister’s assertion that non-BJP States must pick up the tab in cutting fuel tax rates has kicked off a storm between the Centre and Opposition-ruled States. The statement cannot be disputed factually, as the BJP States followed suit in November last year when the Centre cut excise duties on petrol and diesel. The question that the Opposition States have raised is whether they could have been expected to sacrifice revenues, given their constraints in the wake of GST implementation, made worse by the economic slump since 2019-20. Fuel taxes, along with tax on liquor, and stamp duty are the only options to raise own tax revenues for States. They have also argued that the Centre’s exclusive domain over surcharges and cesses, which accounts for 20 per cent of total government revenues, creates an uneven playing field. This acrimony not only makes a mockery of cooperative federalism; it also shortchanges the consumer and other economic agents. It’s important that both, the Centre and the States come to an understanding on cutting taxes so that inflation is curtailed, and the economic recovery does not suffer any further.

It is true that taxes on petrol are highest in Maharashtra, West Bengal, Telangana, Andhra Pradesh, Jharkhand and Kerala – precisely the States specifically mentioned by the Prime Minister in a Covid management meeting. However, some BJP-ruled States such as Madhya Pradesh, Karnataka, Assam and Bihar too levy taxes that are 23 per cent or more on the prices of petrol and diesel – many of them opting for a combination of ad valorem and specific rates. The rates in Gujarat and Uttar Pradesh are well below 20 per cent, while Telangana, Andhra Pradesh and Assam levy rates above 30 per cent. So, there isn’t a strict binary between the BJP-ruled States and others. In absolute terms, the levies per litre of petrol by the Centre and most States are comparable but the latter’s ire is that almost all (98 per cent) of the excise duty of ₹27.90 per litre is appropriated by the Centre because as much ₹26.50 per litre is in the form of surcharge/cesses that don’t devolve to States. And of the basic excise duty component of ₹1.40 per litre, the States get a piffling 81 paise per litre only as their share. It’s not surprising then that they complain. The Centre has said in its defence that it has used its revenues to good effect in terms of development and welfare expenditure. However, on federalist principles, it cannot be argued that a rupee spent by the Centre is more socially and economically productive than that by the States.

Clearly, the Centre and States must cut out the politicking and agree to a formula of cutting taxes at a time when fuel prices globally are likely to rule high. They cannot be competing with each other to tax the consumer when they should be cooperating to reduce the load on citizens from rising prices. In the quarrel over who levies more tax the consumer is the casualty. It’s time that the Centre and States partake in her burden. Some statesmanship is called for, from both sides.

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