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Neither fair nor feasible for Tamil Nadu to further cut fuel taxes: Palanivel Thiaga Rajan



He was responding to the comments made by the Prime Minister urging Opposition-ruled states to reduce taxes on auto fuel

Tamil Nadu government has repeatedly urged the Centre 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, said Tamil Nadu Finance Minister Palanivel Thiaga Rajan in a release on Thursday.

“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. We hope that the Union Government will heed to this reasonable request in the true spirit of co-operative federalism.

Rajan was responding to the comments made by the Prime Minister Narendra Modi on Wednesday while reviewing the Covid-19 situation with the states. The Prime Minister had mentioned that the Centre had reduced excise duty to lower the burden of prices of petrol and diesel on the people last November. While some states had reduced taxes simultaneously, many, including Tamil Nadu, did not heeded to the Union Government.

Contrary to his remarks, the Tamil Nadu Government had cut the VAT on petrol in August 2021, prior to the Union Government’s action. The reduction had resulted in a relief of ₹3 per litre. It was estimated that the State Government would incur a loss of ₹1,160 crore annually due to this reduction. Yet this was done, despite the financial strain inherited from the previous government, to reduce the people’s burden, Rajan said.

On the contrary, the Union Government’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 Centre’ has increased the cess and surcharge on petrol and diesel while reducing the basic excise duty that is shareable with the States.

Prior to the reduction of taxes on petrol and diesel by the Centre, the levy of tax, including cesses and surcharges by the Union Government on petrol was ₹32.90 per litre and ₹31.80 per litre on diesel. This has been reduced to ₹27.90 per litre for petrol and ₹1.80 per litre for diesel after the cut, Rajan said.

When compared to 2014 (when basic price was roughly the same), the Union Government still levies an additional tax of ₹18.42 per litre for petrol (an increase of roughly 200 per cent) and ₹18.23 per litre for diesel (an increase of over 500 per cent) compared to the taxes in effect when it took office in 2014.

Tamil Nadu currently levies tax to the tune of ₹22.54 per litre on petrol and ₹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 ₹3 per litre on petrol in August 2021, Rajan said

Published on

April 28, 2022

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