A tax burden that attacks the federal rights of states

The imposition of fuel surcharge by the Center is beyond basic taxes and is a gross abuse of the provisions of the Constitution.

The Narendra Modi government reduced the excise duty on petrol and diesel on the eve of Diwali. While the cut in petrol was ₹5, the duty on diesel was reduced by ₹10. Finance Ministry ‘dedicates’ cuts to farmers to “continue pace of economic growth” [COVID-19] lockdown phase” and added that the reduction “will come as an incentive for farmers in the times to come”. Rabi Weather”.

What could be a bigger hypocrisy than this? The Center is levying an additional cess of ₹31 and ₹33 on petrol and diesel, respectively, till the beginning of November. When the Center started this practice of levying special additional excise duty and cess on petrol and diesel, we Left parties protested strongly. I recall that during the winter session of 2014, a statutory resolution was introduced in the Rajya Sabha by the then Finance Minister Arun Jaitley against the overall increase in excise duty. After this, the Center amended the rules to increase the tax on petrol and diesel.

The Constitution allows the Center to levy cess and surcharge, in exceptional circumstances, over and above the basic taxes and duties. But making it several times higher than the basic taxes is nothing but an abuse of such provisions of the Constitution. These additional taxes do not go into the divisible pool and such a high burden of taxes is an attack on the federal rights of the people and the states.

Surcharge is defined as a small amount of tax levied over and above the existing tax. How can it be seven or eight times the basic tax? What is the rationale for this? Now the basic excise duty is ₹ 1.40 and the remaining tax is made up of special additional excise duty and cess which will not go to the divisible pool and states. Article 271 says: “Notwithstanding anything contained in articles 269 and 270, Parliament may at any time levy for the purposes of the Union by a surcharge any duty or tax referred to in those articles except the goods and services tax under 246A and the entire income of any such surcharge shall form part of the Consolidated Fund of India.” This is a savings clause, which is being misused by the Center to curtail the powers of all the states.

revenue data

To illustrate this point, let us look at the following conjectures. According to the data published by Petroleum Planning and Analysis Cell (PPAC), the central government has collected around Rs 3.72 lakh crore as revenue from petroleum products in 2020-21. Of this, only Rs 18,000 crore is collected as basic excise duty. Around ₹2.3-lakh crore is collected as cess and the remaining ₹1.2-lakh crore is collected as special additional excise duty. Here, three important points are worth noting: 1. The basic tax component of the entire ₹3.72-lakh crore is only ₹18,000 crore, which is as low as 4.8% of the total revenue from petroleum products; The divisible pool is only 41% of this ₹18,000 crore; Most importantly, the cess and additional excise duty on petroleum products constitute about 95% of the total revenue from petroleum, which is not to be shared with the states. This is a classic example of weakening the prevailing federalism in the country. This is to be subjected to in-depth discussion including the dimensions of the constitutional provisions under which the above duties and cess have been levied.

After the implementation of the Goods and Services Tax (GST), states are empowered to fix taxes on only three items – petrol, diesel and liquor. The Center has done injustice to the states by unilaterally snatching away a large part of the tax revenue on petrol and diesel. This is a disgusting experiment of fiscal federalism. All the states should unite and oppose it.

pertinent question

The Center has earned lakhs of crores of rupees from these additional taxes and cess. Even in the midst of the pandemic, the Center must have collected lakhs of crores of rupees from these taxes. But where did this money go? Who got the benefit of this money? Answering these questions will reveal the real crisis of the states and the Centre.

The country is passing through an unprecedented crisis. The novel coronavirus pandemic has made it worse. States have to earmark funds to help the people. In a state like Kerala, we have tried our best to protect people by providing food kits, monthly financial assistance to below poverty line families who have lost their bread earners due to COVID-19 and other necessary arrangements .

RNR. relevance of

The promise was that the Revenue Neutral Rate (RNR) would be implemented, which means that the states would get the same revenue as they got before the implementation of GST. The average tax on goods during the initial GST period was 16%. At present the average rate of taxes on goods is 11.3%. But has it benefited any consumer? Instead, inflation is rising as well. All essential commodities are more expensive than the price before GST. Neither the government nor the people benefited from this.

On an average, the country collects ₹1 lakh crore per month as GST – ₹12-lakh crore in a year; ₹6-lakh crore each for the states and the Centre. Had the RNR been maintained, the total amount would have been Rs 18 lakh crore at the rate of 16%. The states would have received at least ₹3 lakh crore extra. Kerala would have received ₹12,000 crore as SGST and at least ₹2,500 crore as the state’s share from the divisible pool. So while the Center incurred a loss of ₹1,80,000 crore just because the RNR was not maintained, Kerala lost ₹14,500 crore from its revenue annually. Will have to fix it. Democratically fixed taxes are essential for the survival of any state or country. RNR was promised to be maintained at the time of implementation of GST. But the facts are different. A detailed analysis should be done as to why the states are losing revenue. GST has to be streamlined to ensure RNR, but without harming common people.

After driving out the states, the Center has now proposed a national monetization pipeline that would also affect the sovereignty of the Republic of India. The Center is resorting to massive sale of country’s assets to meet daily expenses like salaries of employees. The real reason for such a crisis is the neoliberal policies adopted by the governments at the Center since 1991. As a result, profitable Navratna companies, national highways and railway stations are also up for sale.

units that receive

And who are the beneficiaries of all these steps? A handful of corporate houses. The Centre, which has calculated ₹6 lakh crore as the value of public assets to be monetised, waived off corporate loans worth ₹8.75 lakh crore. Now, a bad bank will mainly look after the non-performing assets created by these corporate houses at the cost of public money deposited in public sector banks. On one hand, while the property of the public is being handed over to the corporate houses in Thal, on the other hand the Center is repaying the loans of these houses with public money. Weird, indeed. Corporate taxes worth around ₹1 lakh crore were also omitted in the last financial year. The exemptions given to the corporate houses resulted in huge revenue losses for the Centre, and in turn the states suffered losses from a divisible pool. To compensate for this, the Center is exploiting the people during the pandemic by imposing taxes on petrol and diesel to the maximum possible extent. Revenues are flowing towards a slew of corporate companies helping people during a pandemic. This has to be stopped. At this juncture there is a need for collective action by all the opposition parties against these policies.

KN Balagopal is the Finance Minister

of Kerala


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