Tokenism of tax cut

Predictably, poll-bound states Himachal Pradesh and Gujarat have slashed taxes on petrol and diesel. It is a political move. The Maharashtra Government’s decision to match the quantum of cut announced by Gujarat was, however, strategic: to check flight of oil revenues to the neighbouring state. Reducing petrol and diesel rates ahead of crucial elections is a common populist ritual and the Modi government, too, found itself succumbing to political managers’ warnings. Recently, the Centre reduced excise duty on the two fuels by Rs 2 per litre and asked the state governments to slash VAT by 5 per cent. So far, only two BJP-ruled states have taken the Central government seriously. States will never sacrifice easy inflow of oil revenues because their role model, the Centre, has the lion’s share in this booty and it is unwilling to forgo this revenue. Ultimately, people suffer.

Even after the recent cut in excise duty, the total tax on petrol exceeds 100 per cent of its cost in Delhi that includes the dealer’s margin. On diesel, the total tax burden is over 70 per cent. Indeed, petrol and diesel are heavily taxed and it is an ethical issue because the burden of an indirect tax is also shared by the poor. It is common knowledge that high fuel rates stoke inflation. The existence of VAT on petroleum products is also affecting industry adversely. While GST is levied on manufactured goods, inputs of petroleum products attract VAT, leading to cascading of taxes.

A solution lies in bringing petroleum products under the GST regime. This will significantly reduce petrol and diesel prices. The Finance Ministry blames the states for being reluctant. It is incumbent upon the Central government, with a strong leader, to persuade the states to get on board on this matter. The onus cannot be put on the states. There is need for consultations and consensus. This is the time to bring petrol and diesel under the GST regime. This matter must be included in the agenda of the next GST Council meeting scheduled to be held in Guwahati later this month.