Tamil Nadu rules out further reduction in taxes on petrol, diesel

Tamil Nadu Finance Minister P T R Palanivel Thiaga Rajan on Friday termed as “unreasonable” the Union government’s request to state governments to reduce the state taxes on petrol and diesel while reducing its own share of taxes. He said it was “neither fair nor feasible” to further reduce state taxes as Union taxes continue to be “exorbitant.”

In a three-page statement, Thiaga Rajan said the Union government has repeatedly raised taxes on petrol and diesel by "placing a heavy burden" on the people, despite calls from various quarters to reverse increases in their share of taxes.

Referring to the Union government’s request to state governments to reduce the state taxes on petrol and diesel further, he said this is not a “reasonable request.” He also referred to the DMK government’s decision to reduce the price of petrol by Rs 3 per litre during his Budget speech on August 13 to benefit the low-and middle-income users, who own 2.63 crore two-wheelers in Tamil Nadu.

“We estimated 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,” Thiaga Rajan added.

He explained that if the Centre were to reduce the taxes to 2014 rates, the state tax - levied as an ad-valorem tax on the sum of basic price and Union government levy - will automatically reduce as well.

“While the Union government’s taxes continue to be exorbitant, it is neither fair nor feasible for the state government to further reduce taxes. I reiterate that the sole, simple, and fair approach to improve the situation for all, is for the Union government to reduce the levy of taxes on petrol and diesel to the rates prevailing in 2014,” the Finance Minister added.

On August 1, 2014, the basic price of petrol and diesel and the global import prices were in line with the current import prices in rupee terms. The basic price was Rs 48.55 per litre for petrol Rs 47.27 per litre for diesel. On 04.11.2021, the basic price of petrol was Rs 48.36 per litre while that of diesel was Rs 49.69 per litre.

“On 01.08.2014, the Union Government taxes were Rs 9.48 per litre on petrol and Rs 3.57 per litre on diesel. At that time, the state government taxes were Rs 15.47 per litre on petrol and Rs 10.23 per litre on diesel.” He said.

The DMK is already facing criticism from Opposition parties for not fulfilling its poll promise of reducing prices of petrol and diesel by Rs 5 and Rs 4 respectively. The poll promise with regard to petrol was partially fulfilled. The AIADMK and BJP have been demanding that the state government reduce taxes on fuel, especially after the Centre effected a reduction.

Prior to the reduction of taxes on petrol and diesel by the Union Government, Thiaga Rajan said, the levy of tax by the Union Government on petrol was Rs 32.90 per litre and Rs 31.80 per litre on diesel.

“This has currently been reduced to Rs 27.90 per litre for petrol and Rs 21.80 per litre for diesel after the announced cut. So, when compared to 2014 (when the basic price was roughly the same), the Union Government still levies an additional tax of Rs 18.42 per litre for petrol and Rs 18.23 per litre for diesel,” he added.

In Tamil Nadu, the state government currently levies a tax to the tune of Rs. 21.46 per litre on petrol and Rs 17.51 per litre on diesel. “The additional taxes (of Rs 9 per litre on Petrol which was reduced by us by Rs 3 in August, & Rs 7.25 per litre on Diesel) relative to the 2014 level were imposed by the previous ADMK government,” the statement said.

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