High fuel taxes an incurable addiction for govts

By K. Raveendran

Earning cash through fuel taxes has become an addiction for our governments. Like any addiction, this one is also not amenable to any easy cure. Only shock treatments can do that.
Both the Centre and the states have been playing hide and seek with the people on the highly sensitive issue of moving petroleum products into the GST system. When the Modi government adopted the new tax regime in the most dramatic fashion through a midnight parliament session, with the golden promise of ‘one nation, one tax’, everything was moved to the new system, but the petroleum products were left out, primarily because it would have robbed the government of a tax resource that helped to mop up any amount of money at will.
The run-up to the 45th GST Council meeting, concluded the other day in Lucknow, had raised fond hopes among people about a likely shift for the petroleum products, and as a result a possible steep reduction in the fuel prices, which currently are a heavy load on household budgets. It is not just the public that is complaining about this, even the Reserve Bank of India has expressed concern over the high prices of petrol and diesel and the inflationary pressure that these exerted on the national economy, apart from throwing household budgets out of gear.
But as both the Centre and state governments knew pretty well and in advance, the Council meeting decided to put off the discussion to a future date, on which there is no clarity now, just as it won’t be there for any time in future.
Finance minister Nirmala Sitharaman appeared particularly happy to announce that the meeting felt that the time was not yet ripe for bringing petroleum products under GST as both the Centre and the states, including Karnataka and Uttar Pradesh ruled by BJP, opposed such an action as it would lead to huge revenue losses. Opposition-ruled states like Kerala had anyway declared beforehand that there was no way they could agree to such a decision.
While the need to bring petroleum products under the GST regime has dominated the public debate over quite some time, there was no move to bring the issue up out of turn, but for the fact that a directive by the Kerala High Court had forced the subject on the Council’s agenda. In fact, Nirmala Sitharaman even clarified that the meeting took up the issue purely at the ‘behest of the court’ and that the decision would now be reported back to the court.
It is a different matter that opposition political parties have been shedding crocodile tears about the high fuel prices, which are at record levels despite a recent softening and using the problem to score brownie points in their political campaigns against the BJP. But even these parties, when they are in the government, close their ranks against any move to cut fuel taxes. The states are asking the Centre to reduce its excise duty, which of course accounts for a very high component of the high prices. The state governments have been laughing away to glory every time petrol and diesel prices because it brings them more revenue, irrespective of the pain it causes to their own people.
The decisions of the latest GST Council meeting have positive take-aways for the Modi government, which is bound to put the blame on the state governments, particularly in view of the crucial round of assembly elections that lies ahead. That the Uttar Pradesh government also opposed the move is not likely to act as a deterrent for the BJP in this regard.
Fossil fuels have been a significant contributor to the overall revenue of central and state governments, which have traditionally depended heavily on taxes from petrol and diesel, as demonstrated by the recent increases in excise and VAT. As on January 1, 2021, 62 percent and 58 percent of the final prices of petrol and diesel respectively are made up of taxes in Delhi.
A summary of the public revenue accruing from the energy sector to the Centre and states in FY2018-19 and FY2019-20. Showed the total earnings from the energy sector at around Rs 6.6 lakh crores, which represented 14.8 percent and 13.4 percent of the total government revenue in 2018-19 and 2019-20 respectively. The Centre was more dependent on these revenues than states, as the share of the energy sector to its revenues over the two years was 20.3 percent and 18.8 percent respectively. The corresponding values for states over the two years were 11 percent and 9.8 percent respectively.
The petroleum sector is by far the largest contributor to the overall tax revenue, with the Centre depending on it for 21 percent of its tax revenue and many states being dependent on it to a significant extent. (IPA Service)

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