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Centre’s fuel tax too high, not feasible for states to reduce taxes further: Tamil Nadu finance minister

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.

fuel surcharge

Responding to Prime Minister Narendra Modi’s criticism that states, including Tamil Nadu, were not reducing taxes on fuels, state’s finance minister Palanivel Thiaga Rajan said given that the Union government’s taxes continue to be high, it is neither fair nor feasible for it to expect the state government to reduce the taxes further.

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 said, adding that he hopes that the Union government will heed to this reasonable request in the true spirit of co-operative federalism.

Pointing out that Tamil Nadu had cut the VAT on petrol in August 2021 itself, prior to the Union government’s action, which resulted in a relief of Rs 3 per litre in the state, he said it was estimated that the state 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,” Rajan said in a statement.

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.

Though the revenue to the Union government has increased manifold, there has not been a matching increase in the revenues to the 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.

In 2020-21, the revenue to the Union government from levies on petrol and diesel was at 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 Tamil Nadu government in 2020-21 received only Rs 837.75 crore as share of the tax devolution from the Union excise duties on petrol and diesel against the Rs 1,163.13 crore received in 2019-20.

On November 3, 2021, the Union government announced a tax reduction of Rs 5 per litre on petrol and Rs 10 per litre for diesel. Since Tamil Nadu levies ‘ad valorem’ taxes which are applied after Union taxes, this move by the Union caused an additional loss of about Rs 1,050 crore in annual revenue to Tamil Nadu.

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