No reduction in VAT on petrol and diesel: Finance Minister

‘But it will be cut once Tamil Nadu’s finances improve’

Tamil Nadu Finance Minister P.T.R. Palanivel Thiaga Rajan on Sunday ruled out reducing the VAT on petrol and diesel in the present circumstances, but promised to bring it down once the State’s finances improved and the injustice done to Tamil Nadu in the sharing of tax revenue was rectified.

“Though we have fulfilled many promises, we could not bring down the VAT on petrol and diesel in the present circumstances. I will explain why it cannot be done now,” he said.

Mr. Rajan said that after the BJP came to power at the Centre in 2014, it increased the total taxes and cess on petrol from ₹10.39 (of which 50% was excise duty, which was shared with the States) to ₹32.9 (from which only ₹1.4 was shared with the States) in the 2021 Union Budget.

“In the last year alone (2020-21), the Union government’s revenues from cess and surcharges on petrol and diesel have rocketed from ₹2.4 lakh crore to about ₹3.9 lakh crore, while the actual revenues shared with Tamil Nadu from the excise tax collected by the Union on these products have dropped from ₹1,163 crore to ₹837 crore,” he said.

Mr. Rajan added that after the agriculture cess was added in place of excise duty in February 2021, the States’ share was further reduced by about ₹50,000 crore. “If a State government which is already facing such a loss further reduces the VAT, it will amount to abetting the unfair deeds of the Union, which has increased the cess and surcharge while appropriating the States’ share. It will be an injustice to the people of the State, irrespective of the ruling party,” he said.

The Minister estimated that for a rupee raised by the Union from the average Tamilian through direct and indirect taxes, roughly 35 paise was the amount distributed from the Union to that citizen through grants and share of taxes.

As another benchmark, he stated that while Tamil Nadu was the source of roughly 10% of India’s GDP and tax contribution, the formula of the 15th Finance Commission allocated only about 4% of the allocation of 41% of the Union’s tax revenues to all the States combined (4% of 41% = 1.7%), after excluding cesses and surcharges.

He also alleged that even after the price of crude oil came down, the Centre had not reduced the prices of petrol and diesel.

“When the crude oil price was $112 per barrel, the price of petrol was ₹69 and the State’s share was ₹14.48. In 2020, the price came down to $40 per barrel, but petrol was sold for ₹98 and Tamil Nadu’s share was ₹23. Similarly, when crude oil was sold for $111 a barrel, the price of diesel was ₹43.99. Now, the price has come down to $44 per barrel and diesel is sold for ₹92,” he explained.

The Minister said Tamil Nadu was levying less VAT than many other States. “But these States are getting more from the Centre and still levy more VAT. How can we run the government if we further reduce VAT?” he asked.

Mr. Rajan said the government did not depend only on the TASMAC liquor shops for revenue. He said the work on preparing a White Paper on the State’s finances was on, and it would be tabled in the Assembly two weeks after the Governor’s address.

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