Pressure mounts on Karnataka to slash tax on petrol & diesel

BENGALURU: With the Centre slashing excise duty on motor fuels, pressure is mounting on the Basavaraj Bommai-led Karnataka government to reduce local sales tax on petrol and diesel.
The Centre on Saturday slashed excise duty by Rs 8 per litre on petrol and Rs 6 per litre on diesel. Besides consumer forums and opposition parties, BS Yediyurappa, former chief minister and Bommai’s mentor, also urged the state to cut taxes on motor fuels and reduce the burden on people. Neighbouring states such as Maharashtra and Kerala have already reduced local tax. However, Bommai said he will take a call after assessing the financial implication of the move. “The Centre has just now announced the reduction of excise duty on fuels. Let us consider it based on the financial situation,” Bommai said on Sunday.
Following the Centre’s move, the retail price of petrol fell from Rs 111.1 to Rs 101.9 and that of diesel from Rs 94.8 to Rs 87.9 in Karnataka. Prices will reduce further if the state government does slash sales tax. BT Manohar, a member of Karnataka State GST Advisory Council, said: “The Centre’s decision will spare consumers from high prices and will ease rising inflation. The state should respond accordingly, considering the inflationary nature of motor fuels, especially diesel.”
While officials in the chief minister’s office say Bommai is in favour of reducing sales tax of fuels, finance department personnel want the CM to take a measured step. “The state government calculates tax on the sum of the base price and central excise duty. Since excise duty has been reduced, the state is already losing revenue. If local sales tax is reduced, it will futher dent state revenues,” said a senior official from the finance department, who pointed out that the retail price of motor fuel in Karnataka is cheaper than the other south Indian states.
However, domain experts say a reduction in tax will result in an increase in consumption and the state’s revenue will, in fact, go up. They pointed to the surge in consumption after fuel rates were reduced by Rs 5 on a litre of petrol and Rs 10 on diesel in November 2021. In the subsequent months, consumption of diesel rose from a monthly average of 5 lakh to 6.5 lakh litres in January 2022, while 3 lakh litres of petrol were sold against an average of 2.5 lakh litres prior to the reduction.
The trend has remained constant till date. The increase in sales saw the government earning about Rs 1,700 crore on an average every month compared to a monthly average of Rs 1,650 crore before November 2021. “A big reason for the increase in consumption in Karnataka is cheaper pricing compared to neighbouring states,” Manohar said. “Bulk consumers such as truckers tank up in border areas in Karnataka. If the government reduces sales tax, the trend will get stronger. The state should concentrate on increasing consumption to offset any dip in revenue.”