Petrol, diesel tax cut costs Centre ₹1 trillion a year
Premium- Centre had last November cut excise duty on petrol by ₹5 a litre and on diesel by ₹10 a litre, following which some of the states reduced their value added tax (VAT) on the two autofuels
The Central government took a hit of ₹8,700 crore a month due to the steep excise duty reduction announced on petrol and diesel last November, which works out an annual loss to the exchequer of ₹1 trillion, a person privy to the data available with the government said.
Centre had last November cut excise duty on petrol by ₹5 a litre and on diesel by ₹10 a litre, following which some of the states reduced their value added tax (VAT) on the two autofuels. On an average, the VAT reduction by states was by ₹5 a litre on diesel and ₹6 a litre on petrol.
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 ruled states alone, the person said.
Tax on petrol and diesel has become a political issue with the Centre and states expecting each other to reduce taxes further to give relief to the consumer while public spending requirements in the aftermath of the pandemic had gone up at both central and state levels. Prime Minister Mody’s appeal on Wednesday to states which did not reduce taxes after Centre’s tax cut last November, to follow suit invited a sharp reaction from the Opposition Congress party saying that the Centre collected ₹26 trillion in last eight years in fuel taxes. Oil and gas prices in world markets surged in recent months in the wake of geopolitical tensions, with Indian basket of crude at an average of $102 per barrel in April, making the retail price inclusive of taxes high to the consumers.
The person quoted above said that seven states that have not reduced taxes on petrol and diesel since last November have earned an extra ₹11,945 crores compared to the other states that reduced VAT.
As against the budget estimate of ₹6.65 trillion and revised estimate of ₹7.4 trillion, the Centre transferred ₹8.82 trillion to states before the close of FY22, the person said. The total release to states exceeded the FY22 budget estimate by ₹2.17 trillion.
Close monitoring of receipts from taxes and duties to the central government in FY22 enabled the Centre to release two additional instalments of central taxes over and above the regular 14 instalments devolved to states during a financial year, the person said. “The objective of this higher transfer was to ensure that the state governments have all the financial resources required to fund their development programmes," said the person, who spoke on condition of anonymity.
RBI data shows total developmental expenditure incurred by the Modi Govt in the 2014-22 period was ₹90.9 trillion, far higher than is being alleged by some sections of the Opposition, finance ministry had said in a social media post on 9 April. That clarification came in the context of opposition criticism about high taxes on petrol and diesel. That statement also said quoting RBI figures that the expenditure incurred by the Modi government included ₹24.85 trillion spent so far on food, fuel and fertiliser subsidies and ₹26.3 trillion on capital creation.
“Not only has the Modi Government devolved more to the states than it initially budgeted, but it has 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 quoted above said.
The total spending on providing free food to the poor during the pandemic and beyond (March 2020 to September 2022) under the Pradhan Mantri Garib Kalyan Anna Yojana is nearly ₹3.4 trillion, the person said. “It is therefore clear that the collections from the fuel tax have been put to good use as developmental expenditure for the benefit of the nation and its people," said the person. An email sent to the finance ministry seeking comments for the story remained unanswered at the time of publishing.