Kerala’s Left Democratic Front government on Wednesday announced a moderate cut in taxes on petrol and diesel so as to let retail prices of the two auto fuels reduce by Rs 1/litre in the state, effective June 1.
Kerala’s Left Democratic Front government on Wednesday announced a moderate cut in taxes on petrol and diesel so as to let retail prices of the two auto fuels reduce by Rs 1/litre in the state, effective June 1. Petrol was sold at retail outlets in Thiruvananthapuram at Rs 82.61/litre on Wednesday while diesel cost Rs 75.19/litre to the consumer. The state’s finance department has estimated the revenue loss from the tax cuts at Rs 509 crore on an annualised basis. Kerala’s move is apparently aimed at giving a political message to the Centre which has so far resisted calls for excise cuts on the two fuels that saw a steep hike in their prices in recent weeks (ending a continuous spell of price increases for 16 days, oil marketing companies cut the prices of both fuels by a nominal 1 paise/litre each on Wednesday).
“By cutting the state’s share of fuel taxes and incurring losses, we are giving a cue to Central government to cut the excise duty,” chief minister Pinarayi Vijayan said. Aware of the fiscal cost of excise cuts, the Centre is looking at other options to find a “long-term, structured solution to the issues arising out of the volatility of crude prices,” including revisiting the practice of asking upstream oil companies to give discounts on crude to OMCs.
While refiners follow a formula of ‘trade parity pricing’ to fix the refinery transfer price of petrol and diesel, taxes play a major role in the price build-up at retail outlets. Currently, around 47% of the retail petrol price and roughly 40% of retail diesel price are due to taxes. The central excise, levied as specific (quantity-wise) duties, is now 25.4% of the retail price of petrol in Delhi while state’s VAT share is 21.3%.
The Kerala finance department is working out a procedure for the price cut. As and when the Central government takes action to reduce price, the state will withdraw the reductions that it had made, sources in the state finance ministry said. The proposed cut in taxes would be reviewed once in 15 days. “Stung by the rapid surge in the prices of fuel that has made life harsh for the common man, the state government was forced to address the issue by forgoing its share of taxes,” Kerala finance minister TM Thomas Isaac said. “However, the onus is on Centre to make a significant relief by cutting the excise duty,” he added.
As a consumer state far away from major production centres, Kerala has been nixed by the high retail prices of fuel (one of the highest in the country) that have jacked up transportation costs and thereby the end-prices of goods. However, as a fiscally-stressed state, the Kerala government’s reliance on fuel taxes is very high. Every time the petrol prices go up, the state’s revenue goes up as the taxes are ad valorem. While in the month of February, the state collected an additional Rs 669 crore from fuel taxes due to the price spike, the figure for March was even higher at Rs 1,182 crore.
Kerala government is now levying 32.02% (Rs 19.50) tax for petrol and 25.58% (Rs 15.51) on diesel.