What is the stand of the opposition ruled states on reduction in Value Added Tax to bring down petrol prices?
What is the stand of the opposition ruled states on reduction in Value Added Tax to bring down petrol prices?
the story So Far: retail sale of petrol Above ₹100 per liter all over India. Rising crude oil prices have added to the burden, but the primary reason behind the steep rise in pump fuel prices over the years is the gradual increase in the excise duty component of the central government. Currently, for every liter of petrol, the Center charges ₹27.9 as tax, while in 2014, this component was around ₹10.4. there is such a difference after The duty was cut by ₹5 per liter last November, while some states follow in the footsteps of the center With the cut in Value Added Tax (VAT), many others did not. on Wednesday, Prime Minister Narendra Modi said that fuel prices were very high in some non-BJP ruled states Because he did not give the public the ‘benefit of reduction in central excise duty’. He said states like Maharashtra, West Bengal, Telangana, Andhra Pradesh, Tamil Nadu, Kerala and Jharkhand did not reduce VAT last November while Karnataka and Gujarat did.
What is the opposition saying?
Kerala Finance Minister KN Balagopal said that the state has not increased the sales tax on petrol and diesel in the last six years. “So, what is it that we should reduce,” he questioned. Similarly, Telangana Chief Minister K Chandrasekhar Rao said that his government has not increased fuel tax since 2015. West Bengal Chief Minister Mamata Banerjee said, “We wanted the prices of petroleum products to come down but the prime minister is asking the states to reduce taxes. From where will we do that?”
By how much has the central tax on fuel increased recently?
A comparison of state tax rates and central excise duty on petrol over the same period helps to understand the impact of both the taxes on retail prices. However, since the data on past tax rates is not collected by the government, and since the effective dates of state and central taxes do not match, appropriate dates were selected to make comparison feasible.
On April 24, 2022, the price of petrol in Chennai was Rs 110.93 per liter. , photo credit: Karunakaran Mo
As of October 2018, central excise duty on petrol had three components: ₹2.98 per liter was charged as basic excise duty, ₹7 per liter was special additional excise duty and ₹8 per liter was road infrastructure cess. Overall, the amount of the central component was ₹17.98 per liter of petrol. Cut in February 2022, central excise duty on petrol had four components: ₹1.40 per liter was charged as basic excise duty, ₹11 per liter was charged as special additional excise duty, ₹2.5 per liter as agricultural basic was labeled as Framework and Development Cess. And ₹13 per liter was collected for road and infrastructure cess. Overall, the amount of the central component was ₹27.9 per liter of petrol.
In the period taken for review, the Centre’s tax component expanded by about ₹10 per liter of petrol.
How much has the tax levied by the states increased?
As of February 2019, Kerala charged 30.08% as sales tax with an additional sales tax of ₹1/litre; Also, 1% was charged as cess. Telangana charged 35.2%. West Bengal charged 25% or ₹13.12 per liter, whichever is higher, with minor additional components. None of the three states had hiked rates till April 2022.
Tamil Nadu imposed 34% VAT on petrol till February 2019. In 2022, the tax structure has changed to 13% VAT and a flat rate of ₹11.52 per litre.
In the period under consideration, the tax on petrol in Andhra Pradesh and Maharashtra (Mumbai) has increased by ₹3 per litre. Karnataka’s sales tax rate fell from 32% to 25.92% and Gujarat’s from 17% to 13.7%. In short, the rate for non-BJP ruled states increases over a period of between zero and ₹3 per litre. Tax rates have come down in BJP ruled states.
How can the impact of state taxes and central excise duty on petrol be measured?
Given the different tax rates between the central and state governments, it is important to standardize them before making a comparison.
One way to do this would be to compare the excise duty collections of the Center on crude oil and petroleum products and the VAT collections of the states on petroleum products as a percentage of GDP. Between FY15 and FY21, the Centre’s tax collection has increased from 0.79% of GDP to 1.88% of GDP. In the same period, the tax collection of states has come down from 1.1% of GDP to 1.02% of GDP.
Another measure would be to compare the tax share of the Center with the tax share of the states in the retail price of petrol. For example, in Delhi, the Centre’s tax share currently stands at 26.4% of the retail price. It was around 14% in May 2014. The state’s tax share currently stands at 16.25% of the retail price, compared to 17% in May 2014.
Therefore, in terms of percentage of GDP and retail prices, the tax collections of the states have remained the same or have decreased slightly, while the tax collections of the Center have increased sharply.
Another important difference is that the central tax rate is a fixed value whereas most state rates are charged as a percentage. That is, the tax collection of the state depends on the base price, dealer commission and excise duty components, while the center does not.