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Sunday, January 23, 2022

Neither fair nor feasible to cut tax on fuels: TN Finance Minister

Ruling out any reduction in State tax on petrol and diesel, Tamil Nadu Finance Minister Palanivel Thiaga Rajan reiterated that the ‘sole, simple, and fair approach’ to improve the situation for all is for the Union Government to reduce the levy of taxes on petrol and diesel to the rates prevailing in 2014.

Such a move will automatically reduce States’ tax (as almost all States follow ad-valorem taxation), he said. The Union Government’s taxes continue to be exorbitant. It is neither fair nor feasible for the State Government to further reduce taxes.

On November 3, the Centre announced a tax reduction of ₹5 per litre on petrol and ₹10 on diesel. Since Tamil Nadu levies ad valorem taxes, this move by the Union will cause an additional reduction in the pump price of petrol by ₹0.65 (total of ₹5.65) and diesel by ₹1.10 (total of ₹11.10) and will result in a loss of about ₹1,050 crore in revenue to the State annually. The Union Government has requested that all State Governments reduce the State taxes on petrol and diesel further, in conjunction with their own reduction of taxes.

‘Not reasonable’

Unfortunately, this is not a reasonable request, he said in a statement.

There are many components which drive the final pump price- basic price (based largely on crude oil and refining costs), Union Excise, cesses/surcharges on the basic price, transportation costs, State government taxes and dealer’s commission.

On August 1, 2014, the basic price of petrol and diesel and the global import prices were in line with the current import prices in rupee terms. The basic price was ₹48.55 per litre for petrol ₹47.27 for diesel.

On November 4, 2021 the basic price of petrol was ₹48.36 while that of diesel was ₹49.69 . On August 1, 2014, the Union Government taxes were ₹9.48 per litre on petrol and ₹3.57 on diesel. At that time, the State government taxes were ₹15.47 on petrol and ₹10.23 on diesel.

Prior to the reduction of taxes on petrol and diesel by Union Government, the levy of tax by Union Government on petrol was ₹32.90 and ₹31.80 on diesel. This has currently been reduced to ₹27.90 and ₹21.80 respectively. So, when compared to 2014 (when Basic price was roughly the same), the Union Government still levies an additional tax of ₹18.42 on petrol and ₹18.23 for diesel.

‘Already cut’

Tamil Nadu levies tax to the tune of ₹21.46 per litre on petrol and ₹17.51 on diesel. The additional taxes (of ₹9 on petrol which was reduced by ₹3 in August, and₹7.25 on diesel) relative to the 2014 level were imposed by the previous AIADMK government.

The Centre has repeatedly increased the tax on petrol and diesel over the last 7 years. If it were to reduce the taxes to 2014 rates, the state tax – levied as an ad valorem tax on the sum of basic price and Union government levy – will automatically reduce as well.

Michael Maren
Former marine biologist who likes to spend as much time in the tropics as possible, due to a horrible time I once had in Alaska. Brrrr.

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