Tamil Nadu Finance Minister Palanivel Thiagarajan (PTR) on Thursday, April 28, said that Tamil Nadu had reduced the VAT (value added tax) on petrol back in August 2021, prior to the Union government’s action, and this had resulted in a relief of Rs 3 per litre to the citizens of the state. He was responding to Prime Minister Narendra Modi’s assertion that the Union government had reduced excise duty last November to lower the burden of prices of petrol and diesel on the people and some states had followed suit while others, notably non-BJP ruled states, did not. PTR said, “It was estimated that the state government would incur a loss of Rs 1,160 crore annually due to this reduction. Yet this was done, despite the financial strain inherited from the previous government, to reduce the burden on the people.”
Pointing to the higher fuel prices in many opposition-ruled states, PM Modi in his meeting with chief ministers on Wednesday, urged them to reduce VAT in "national interest" to benefit the common man and work in the spirit of cooperative federalism.
On the other hand, the Union government’s levies on petrol have gone up substantially in the past seven years since the Prime Minister took charge for the first time in 2014, PTR stated. “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 said.
PTR explained that in 2020-21, the revenue to the Union government from levies on petrol and diesel was Rs 3,89,622 crore which was 63% higher than the revenue of Rs 2,39,452 crore in 2019-20. On the other hand, the government of Tamil Nadu in 2020-21 received only Rs 837.75 crore as share of the tax devolution from the Union Excise Duties on petrol and diesel as against the Rs 1,163.13 crore received in 2019-20, he said.
Prior to the reduction of taxes on petrol and diesel by the Union government, the levy of tax, including cesses and surcharges by the Union government on petrol was Rs. 32.90 per litre and Rs. 31.80 per litre on diesel, PTR said, adding that this has been reduced to Rs 27.90 per litre for petrol and Rs 21.80 per litre for diesel after the cut. “So, when compared to 2014 (when basic price was roughly the same), the Union government still levies an additional tax of Rs 18.42 per litre for petrol (an increase of roughly 200%) and Rs 18.23 per litre for diesel (an increase of over 500%) compared to the taxes in effect when it took office in 2014,” he stated.
PTR said in Tamil Nadu, the government currently levies tax to the tune of Rs 22.54 per litre on petrol and Rs 18.45 per litre on diesel. “The additional taxes, relative to the 2014 level, imposed by the previous AIADMK government were reduced by us by Rs 3 per litre on petrol in August 2021,” he added.
PTR said the states have lost substantial powers to levy their own taxes and raise revenue since the advent of the GST regime, and the states have faced a double whammy due to the COVID-19 pandemic, with their finances being severely affected and also incurring large scale additional expenditure towards COVID relief activities.
The Tamil Nadu Finance Minister stressed that DMK governments have always been ardent proponents of cooperative federalism. PTR said they have repeatedly urged the Union government to reduce the cesses and surcharges being levied and merge them with the basic tax rates so that states get their rightful share from the proceeds of the Union taxes.
“We reiterate that the sole, simple, and fair approach to improve the situation for all, is for the Union government to remove the levy of cesses and surcharges and revert to rates that prevailed in 2014,” he added.