CHENNAI: A day after Union Finance Minister Nirmala Sitharaman announced duty cut of Rs 8 per litre on petrol and Rs 6 per litre on diesel, and urged all States to follow suit, Tamil Nadu Finance Minister Palanivel Thiaga Rajan on Sunday, ruling out any cuts by the State government, said it is unreasonable to expect States to reduce VAT (Value-Added Tax) when the Centre has only partially reduced the taxes it has imposed since 2014.
The central tax rate continues to be high compared to 2014 and it is not reasonable on the part of the Centre, which has increased taxes several times without consultation, to expect States to reduce them now, Thiaga Rajan said.
According to a senior Tamil Nadu finance department official, value-added taxes are calculated on ad valorem basis and any cut in fuel price by the Centre will automatically reduce the quantum of revenue generated through State tax. The Centre, this time, has reduced the tax component under road and infrastructure cess and not on the basic excise duty of which 41% is shared with States.
The loss to TN because of the current tax cut is pegged at around Rs 800 crore per year, the officer said. The minister, in a social media post, clarified that the State VAT is a percentage of tax on the total fuel price (including central taxes). It is 13% for petrol and 11% for diesel. Hence, if the Centre cuts the fuel price by `1, State taxes will fall by 13 paise for each litre of petrol and 11 paise for diesel per litre, he said. “It is heartening to note that the Union government has finally heeded to the repeated requests of the Tamil Nadu government to reduce the taxes on petrol and diesel, which were egregiously increased from 2014 to 2021,” Thiaga Rajan had tweeted.
In a statement on Sunday, the FM said MK Stalin-led DMK government had cut VAT in August 2021 to reduce price of petrol by Rs 3 per litre despite inheriting a precarious fiscal position from the previous government and incurring additional expenses towards Covid relief, he said.
BJP warns of protest if State fails to reduce tax
“IN August 2014, the Union government taxes were Rs 9.48 per litre on petrol and Rs 3.57 per litre on diesel. Following the cut in November and now, it has reduced it to Rs 19.90 per litre for petrol and Rs 15.80 per litre for diesel. It is still higher than the 2014 rates by Rs 10.42 per litre for petrol and Rs 12.23 per litre for diesel.
Therefore, there is a strong case for the Union government to further reduce its taxes,” the FM said in his statement. Thiaga Rajan pegged the annual loss accruing to Tamil Nadu due to duty cuts announced by the Centre in November 2021 and now at Rs 1,050 crore and Rs 800 crore, respectively.
Stating that the State’s revenue has not grown in tandem with the revenue of the Union government, which has increased manifold, the FM said this was because the Centre has increased the cess and surcharge on fuel (which is indivisible) while reducing the basic excise duty that is shareable with States.
Responding to the minister’s remarks that States were not consulted by the Centre before increasing fuel prices, BJP TN president K Annamalai asked if that was the practice during the earlier UPA regime in which the DMK was a key constituent.
Annamalai gave the DMK government a 72-hour ultimatum to implement its poll promise to reduce fuel price or his party will march towards the Secretariat. The State government has been misleading people on the issue for the past one year, Annamalai said.
‘Tax cut will cool inflation’
Chennai: A day after the Centre announced a cut in excise duty on petrol and diesel, the AIADMK on Sunday demanded that the TN government fulfil its promise and cut State tax on fuel. AIADMK joint coordinator Edappadi K Palaniswami and coordinator O Panneerselvam, in separate statements, welcomed Centre’s decision. “This will help cool the increasing inflation and bring the prices of essential commodities,” said Panneerselvam.
Current rate higher than it was in ’14
Citing the Centre’s taxes per litre of petrol (Rs 9.48) and diesel (Rs 3.57) in 2014, the finance minister said the current rates were still higher by Rs 10.42 per litre for petrol and Rs 12.23 per litre for diesel