Kerala cannot afford to forgo the income from the state tax on diesel and petroleum, the state government has told the Centre. Following a letter from the petroleum ministry, states such as Maharashtra, Gujarat, Haryana, Punjab and Himachal Pradesh had trimmed their taxes on petrol and diesel. Dropping 5% tax on petrol and diesel would cause a drain of Rs 1,336 crore per year to the state revenue stream, states the Kerala government’s reply letter to Centre sent this week. The state finances would be barely able to cope with such a severe blow, according to the letter. After GST and the tax on liquor, the biggest contributor to state exchequer is the tax on fuel.
Its monthly earnings from fuel tax, in the recent months, has been to the tune of Rs 600 crore. (August: Rs 548 crore, September: Rs 623 crore, October: Rs 600 crore.), state finance ministry sources said. The Kerala government imposes 24.52% and 31.8% fuel tax on diesel and petrol, respectively. Besides, it claims 1% of the Central tax share as state cess. While the state government finances may nurse a grave wound, if it forgoes the fuel tax, the move would have direct positive impact on the man on the street. If the state agrees to drop the fuel tax, petrol price in the state would go down by Rs 17 per litre and diesel by Rs 11 per litre.