Fundamentally flawed govt narrative on hike in fuel taxes
Finance Minister Nirmala Sitharaman has ruled out any reduction in fuel taxes citing the burden of UPA-era oil bonds. But having been in power for seven straight years, blaming the mistakes of predecessors even for your troubles doesn’t really cut the mustard. The Centre ruthlessly raised fuel taxes in the height of the pandemic last year, earning itself a handsome Rs 3.9 lakh crore in excise duties. This is higher than the budgeted Rs 3.61 lakh crore revenue. Just a slice of these rich pickings covers both principal and interest on the Rs 1.3 lakh crore outstanding oil bonds. When taxpayers chipped in with precious money, helping the government tide over its misery of the past fiscal, Sitharaman’s rationale to not lower taxes is unsettling.
Agreed, government finances are stressed, but she would have gained credibility and taxpayers’ sympathy for her adamant stand just by being truthful. For one, her decision to clean up the balance sheet, accounting for all off-budget items this year, shot up the fiscal deficit, leaving little room for additional borrowings. It means the Centre has to literally scrape the bottom of direct and indirect taxation. Two, of the Rs 3.9 lakh crore fuel tax revenue, over Rs 2.5 lakh crore includes road and infrastructure cess, all of which will be used to build highways and others. This much-needed capital spending helps economic recovery and it’s only reasonable that the government conveys the need for high taxes to citizens, who in any case are bearing the pain. There’s no better way to overpower taxpayers’ frustration and opposition criticism than speaking the absolute truth.
States are in a fiscal crisis of their own and the debate on whether the Centre or states should bite the bullet is getting nowhere. As it is, Central transfers to states are declining as the former has been raising revenue through cesses and surcharges that aren’t part of the divisible pool. This must change. Moreover, because fuel prices are ad-valorem, any reduction by the Centre lowers the base price of fuel leading to lower VAT. Sitharaman should think it through.