Hours after Prime Minister Narendra Modi criticized states like Tamil Nadu for not reducing taxes on fuel, Finance Minister P T R Palanivel Thiaga Rajan on Wednesday responded by saying it is “neither fair nor feasible” for the state government to further reduce taxes and suggested that the Centre revert to 2014 rates by removing the levy of cesses and surcharges.
In a detailed statement, Rajan, a top banker before he took the political plunge in 2016, said the DMK dispensation has repeatedly urged the Union Government to reduce the cesses and surcharges being levied and merge them with the basic tax rates so that States get their rightful share from the proceeds of the Union taxes.
“Given that the Union Government’s taxes continue to be exorbitant, it is neither fair nor feasible for the State Government to further reduce taxes. We reiterate that 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,” Rajan said in the statement.
The Finance Minister was responding to Modi’s statement during a conference with Chief Ministers that states like Tamil Nadu did not heed to the Union Government’s request to reduce taxes on fuel which burdened the citizens of those states.
He also expressed the hope that the Union Government will pay heed to the “reasonable request” in the true spirit of “cooperative federalism.” Rajan also contradicted the Prime Minister saying Tamil Nadu had cut the VAT on petrol by Rs 3 in August 2021 much before the request was made by the Centre.
“It was estimated that the State Government would incur a loss of Rs. 1,160 crores 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.
On the other hand, the Tamil Nadu Finance Minister said, the Centre’s levies on petrol have gone up substantially in the past 7 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 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 contended.
Quoting an example, Rajan said in 2020-21, the revenue to the Union Government from levies on petrol and diesel was Rs.3,89,622 crore which was 63 per cent higher than the revenue of Rs.2,39,452 crore in 2019-20. On the other hand, the Government of Tamil Nadu in 2020-21 received only Rs.837.75 crore as a share of the tax devolution from the Union Excise Duties on petrol and diesel as against the Rs.1,163.13 crore received in 2019-20, he said.
He said since Tamil Nadu levies ‘ad valorem’ taxes which are applied after Union taxes, the move by the Union Government in November announcing a tax reduction of Rs. 5 per litre on petrol and Rs. 10 per litre for diesel caused an additional loss of about Rs. 1,050 crores in annual revenue.
Rajan also said on August 1, 2014, the basic price was Rs. 48.55 per litre for petrol and Rs. 47.27 per litre for diesel, while on November 4, 2021, the basic price of petrol was Rs. 48.36 per litre while that of diesel was Rs. 49.69 per litre.
“On August 1, 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 at Rs. 15.67 per litre on petrol and Rs 10.25 per litre on diesel. Prior to the reduction of taxes on petrol and diesel by the Union Government, the levy of tax, including cesses and surcharges by the Union Government on petrol was Rs. 32.90 per litre and Rs. 31.80 per litre on diesel,” he said.
Rajan also contended that 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 compared to the taxes in effect when it took office in 2014.
Referring to TN, Rajan said the Government currently levies a tax to the tune of Rs. 22.54 per litre on petrol and Rs. 18.45 per litre on diesel. “The additional taxes, relative to the 2014 level, imposed by the previous AIADMK Government were reduced by us by Rs. 3 per litre on petrol in August 2021,” he said, adding that after the advent of the GST regime, states have lost substantial powers to levy their own taxes and raise revenue.
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