Friday 1 July 2022
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Excise reduction cost borne entirely by Modi govt; Maharashtra 3rd non-NDA state to cut VAT on fuel

Union Finance Minister Nirmala Sitharaman today hit back at the opposition's criticism of the excise duty cut impacting the share of states in central taxes

A day after the minister Nirmala Sitharaman announced that the Indian Government had decided to slash the excise duty on petrol and diesel prices, the Maharashtra government announced that they will reduce the Value Added Tax (VAT) by Rs. 2.08 for Petrol per litre and Rs 1.44 for diesel per litre with immediate effect.

The Maharashtra government is expected to monthly lose Rs 80 crore on petrol and Rs 125 crore on diesel following the reduction in VAT. The government will bear a revenue of Rs 2,500 crore annually.

After the reduction of excise duty and the state’s decision to reduce VAT, one litre of petrol will cost Rs 109.27 and a litre of diesel Rs 95.84 in Mumbai.

Chief Minister Uddhav Thackeray yesterday had claimed that the union government’s move to reduce excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 per litre was not enough.

Minister Nirmala Sitharaman had yesterday announced an Rs 8 per litre cut in excise duty on petrol and Rs 6 a litre on diesel.

Earlier, the Rajasthan government reduced Value-added tax (VAT) on petrol by Rs 2.48 per litre and diesel by Rs 1.16 per litre. With this, petrol will be cheaper by Rs 10.48 and diesel by Rs 7.16 per litre in the state.

The Kerala government cut taxes on petrol and diesel by Rs 2.41 and Rs 1.36 respectively.

Karnataka Chief Minister Basavaraj Bommai today said that his government will consider a further cut in fuel tax.

Meanwhile, a day after the union government announced an excise duty cut in petrol and diesel prices, Union Minister Nirmala Sitharaman today hit back at the opposition’s criticism of the excise duty cut impacting the share of states in central taxes with a clarification. She said the cost is borne by the Road & Infrastructure Cess (RIC) component of the taxes levied on petroleum products and so the entire burden of the tax cuts will be borne by the union government,

Allaying concerns that the duty cuts will lower the devolution of taxes to states, Sitharaman said that the basic excise duty on petro products, which is sharable with states has not been touched.

The Union Minister’s remarks come on the back of some states and Opposition leaders criticising her exhortation that they should follow up these duty cuts by slashing -level levies on fuel products.

Former and Home Affairs Minister P Chidambaram pointed out that the situation for states was akin to being between “the devil and the deep sea”, as they are getting very little by way of share of petroleum duties.

“Their revenue is from VAT on Petrol and Diesel… I wonder if they can afford to give up that revenue unless the union government devolved more funds or gave them more grants,” he noted.

Tamil Nadu Minister Palanivel Thiaga Rajan reacted by stating that the Union Government didn’t inform or ask about states’ views while increasing central taxes on Petrol by about Rs 23 a litre (+250%) and by around Rs 29 a litre (+900%) on diesel since 2014. “Now, after rolling back about 50% of their increases, they’re exhorting states to cut,” he said in a tweet, stressing it was an unfair and unreasonable expectation.

“Good to see the interest generated by @PMOIndia @narendramodi ‘s decision yesterday to bring an Excise Duty cut on petrol and diesel,” she said in a tweet, before sharing ‘some useful facts’ which could benefit the ‘criticism and appraisal’ of the tax cuts.

The total taxes levied on petrol and diesel include a Basic Excise Duty (BED), a Special Additional Excise duty (SAED), the Road & Infrastructure Cess (RIC) and the Agriculture & Infrastructure Development Cess (AIDC), of which only the BED is sharable with states, the minister pointed out.

Sitharaman said that the duty cuts of Rs 5 per litre of petrol and Rs 10 per litre of diesel announced in November 2021 were made entirely in the Road and Infrastructure Cess component of petroleum taxes.

The total revenue implication to the union government, on these two duty cuts, is Rs 2,20,000 crore a year, the minister noted, before emphasising that spending on development and subsidies has accelerated under Prime Minister Narendra Modi’s government.

RBI data shows total developmental incurred from 2014 to 2022 was Rs 90.9 lakh crore. In contrast, only Rs 49.2 lakh crore was spent on developmental expenditure during 2004-2014, she said.

“The incurred by our government so far includes Rs 24.85 lakh crore spent on food, fuel and fertiliser subsidies and Rs 26.3 lakh crore on capital creation. Over the 10 years of UPA, only Rs 13.9 lakh crore was spent on subsidies,” she concluded.

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