Tax cut on fuel by Centre only ‘partial’, don’t expect states to slash rates, says Tamil Nadu FM

Tamil Nadu Finance Minister Palanivel Thiaga Rajan said the central government had never consulted states when it increased the taxes and that his state was already incurring loss of over Rs 1,000 crore due to the earlier tax cut announced by the union government in November 2021.

Despite the tax reduction announced on Saturday, the rates were still high compared to 2014, he pointed out.

“It is pertinent to point out that the Union had never consulted the States when they increased the taxes on petrol and diesel multiple times. The exorbitant increase in taxes by the Union Government has been only partially reduced through their cuts and the taxes continue to be high as compared to the 2014 rates.”

“Therefore, it is neither fair nor reasonable to expect States to reduce their taxes,” he said in a statement, in response to Union Finance Minister Nirmala Sitharaman announcing a reduction in excise duty on petrol by a record Rs 8 per litre and that on diesel by Rs 6.

Thiagarajan further said it was ‘heartening’ to note the Centre has “finally heeded to the repeated requests of the Tamil Nadu Government to reduce the taxes on petrol and diesel, which were egregiously increased by the Union Government from 2014 to 2021.”

He recalled the MK Stalin-led DMK government effecting a VAT reduction in August 2021, that resulted in a Rs 3 per litre cut in the price of petrol.

This resulted in an annual revenue loss of Rs 1,160 crore to the state government but this was done to benefit the people despite the financial strain inherited from the previous AIADMK government.

“The Union Government’s levies on petrol have gone up substantially in the past 7 years. Though the revenue to the Union Government has increased manifold, there has not been a matching increase in the revenues to States. This is because the Union Government has increased the cess and surcharge on petrol and diesel while reducing the basic excise duty that is shareable with the States,” he averred.

On August 1, 2014 central taxes were Rs 9.48 per litre on petrol and Rs 3.57 per litre on diesel.

Prior to the reduction of taxes on petrol and diesel by the Union Government in November 2021, the levy of tax, including cesses and surcharges on petrol was Rs 32.90 per litre and Rs 31.80 per litre on diesel.

“This was reduced to Rs 27.90 per litre for petrol and Rs 21.80 per litre for diesel. Now, it has further been reduced to Rs 19.90 per litre for petrol and Rs 15.80 per litre for diesel,” he said.

Though the Centre had reduced the taxes, it was still ‘higher’ than the 2014 rates by Rs 10.42 per litre for petrol and Rs 12.23 for diesel.

“Therefore, there is a strong case for the Union Government to further reduce its taxes,” the minister argued.

While the November 2021 tax reduction by the Centre had resulted in Tamil Nadu incurring an annual revenue loss of Rs 1,050 crore, the latest one will cause a further loss of Rs 800 crore a year, Thiagarajan said.

This will put a huge strain on the finances of the states.

“Though this government inherited a precarious fiscal position from the previous dispnesation and incurred additional expenditure towards Covid-19 relief activities, it reduced the taxes on petrol in a few months after assuming office, for the welfare of the people. Tamil Nadu, despite its limited taxation powers, has taken proactive measures to reduce the tax burden on the people of the State,” he noted.