Tamil Nadu Finance Minister Palanivel Thiaga Rajan ruled out any cut in the sales tax on fuel levied by the state. This came hours after Union Finance Minister Nirmala Sitharaman on Saturday, May 21 announced a reduction in the additional excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 per litre. “I wish to exhort all state governments, especially the states where reduction wasn’t done during the last round (November 2021), to also implement a similar cut and give relief to the common man,” FM Nirmala said.

In a statement, the TN FM said it was heartening to note that the excise duty, which was “egregiously increased” from 2014 to 2021, was being reduced. “Tamil Nadu, despite its limited taxation powers, has taken proactive measures to reduce the tax burden on the people of the state. 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.

The statement pointed out that on August 1, 2014, the excise on petrol was Rs 9.48 per litre and Rs 3.57 per litre on diesel. After some increases, in October 2021, the tax levy including cesses and surcharges by the Union government 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 [in November 2021]. Now, it has further been reduced to Rs 19.90 per litre for petrol and Rs 15.80 per litre for diesel. Though the Union government has reduced the taxes, it is still higher than the 2014 rates by Rs 10.42 per litre for petrol and Rs 12.23 per litre for diesel,” PTR’s statement read, adding that there is a case for the Union government to further reduce its taxes.

He went on to add that the reduction in taxes by the Union government caused a loss to the state government.

The reduction by the Union government is in additional excise duty, which is not shared with states by way of devolution. However, the sales tax levied by a state government on fuel is not a fixed amount (like the excise duty), but is an ad valorem tax. It is levied on the total of the price charged by dealers, their commission as well as the excise duty. When this amount decreases, the amount of VAT charged drops as well.

PTR said the Union government’s reduction in taxes in November 2021 caused a loss of Rs 1,050 crore in annual revenue to Tamil Nadu, and the reduction announced on Saturday will result in a further loss of Rs 800 crore. “This will put a huge strain on the finances of the states that were already burdened due to the additional expenditure incurred by them for Covid relief activities,” he said.

He further added that the taxes levied by the state was reduced in August 2021, where VAT on petrol alone was cut by Rs 3, and due to this the state incurs a loss of Rs 1,160 crore annually.

“It is to be noted that even during the 2006-11 regime, the DMK government had cut taxes on petrol and diesel for the welfare of the common man. On the other hand, 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,” the statement read.