Rajat Sharma

Why non-BJP-ruled states did not like Modi’s appeal to reduce VAT on petrol, diesel ?

akb fullPrime Minister Narendra Modi on Wednesday appealed to all non-BJP-ruled states to reduce Value Added Tax (VAT) on petrol and diesel in order to curb price rise and give relief to common man.

While interacting with chief ministers of all states to discuss steps to counter the fresh wave of Covid-19 pandemic, Modi pointed out that in November last year, the Centre reduced excise duty of petrol and diesel and requested all state governments to reduce VAT. Modi said, only BJP-ruled states reduced VAT, but non-BJP-ruled states like Tamil Nadu, West Bengal, Maharashtra, Jharkhand, Telangana, Andhra Pradesh and Kerala did not lower VAT on petrol and diesel.

Calling for cooperative federalism between Centre and states, Modi said, “In November last year, while reducing excise duty on petrol and diesel, the Centre had requested states to lower VAT and transfer the benefit to their people. Some states lowered VAT, but other states did not pass on the benefit. This has cause big imbalance in the prices of petrol and diesel in different states, and harms the revenue of neighbouring states. It is obvious that state governments lose revenue if they lower VAT, for example, if Karnataka had not lowered VAT on petrol and diesel, it could have gained Rs 5,000 crore more revenue, similarly Gujarat would have earned Rs 3,500-4,000 crore more revenue. But their neighbouring states mopped up additional revenue from Rs 3,000 to Rs 5,500 crore by taking advantage of this.”

“ I am not criticizing this here, I am only pleading for the sake of your own people. Several states like Maharashtra, West Bengal, Telangana, Andhra Pradesh, Tamil Nadu, Kerala and Jharkhand did not accept my plea and their people are bearing the burden of high fuel prices. ..Already we have delayed this by six months, and I again appeal to these states to lower VAT and pass on the benefit to their people. As you know, 42 per cent of all revenue that comes to Centre is passed off to the states.”

“ I therefore appeal to all the states to work in the spirit of cooperative federalism in this time of global crisis. In Chennai, petrol is selling at Rs 111 per litre, while it is Rs 118 in Jaipur, more than Rs 119 in Hyderabad, more than Rs 115 in Kolkata and more than Rs 120 in Mumbai. In Diu and Daman, near Mumbai, it sells at Rs 102. Whatever additional revenue you earned will benefit your people, but for the sake of nation, kindly cooperate. This is my special appeal.”

It is a fact that common people across India are facing problems due to the burden of higher fuel prices, which has a spiralling effect on other consumer products. There is no end in sight in the spiralling rise of global crude prices. The crux of Modi’s speech was that non-BJP governments should lower fuel prices and pass on the benefit to common people. At a time, when opposition leaders are crying hoarse over price rise, the least that is expected from their parties is to lower VAT on petrol and diesel, so that inflation can be kept on leash.

This year, crude oil price has gone up by 33 per cent since January 2022. Like India, Turkey is also dependent on fuel import, but the wholesale price of petrol in Turkey is less than that of India. Economies that are wholly dependent on imported fuel are also facing higher fuel price rise. In Netherlands, petrol is selling ar Rs 193 per litre, in Germany at Rs 171, in France at Rs 145 and in South Korea at Rs 126 per litre, whereas in India, petrol is selling at Rs 104 per litre, while it is Rs 98 per litre in Turkey.

It is a fact that price of petrol has increased by more than Rs 10 per litre in the last 45 days, since March 10, when the UP, Uttarakhand, Punjab elections were over. When Russia invaded Ukraine, it was apprehended that petrol price could jump to Rs 150 per litre, but timely measures taken by Modi government by mopping up Russian fuel at big discount helped our nation. India imports 80 per cent of its fuel requirement. In April 2021, crude oil was 53.4 US dollars per barrel, but this has jumped to USD 112.87 per barrel in March this year, that is nearly 78 per cent jump in a year. Modi said that his government was trying its best to provide relief in fuel prices to the common people, but it is also the duty of state governments to stand with the Centre.

And now, a look at how much additional revenue non-BJP governments earned by not lowering VAT on petrol and diesel. Maharashtra was on top, it earned Rs 3,485 crore from April last year till March this year, while Tamil Nadu earned Rs 2400 crore, Telangana and AP Rs 1,500 crore each, Kerala Rs 1100 crore and West Bengal Rs 1200 crore. That is why, Modi said on Wednesday that these seven non-BJP-ruled states must give relief to their people.

I may add a point here: BJP government in Madhya Pradesh and NDA government in Bihar also did not lower VAT on petrol and diesel. When non-BJP-ruled states asked what happened to the Centre’s earnings from excise duty on fuel, Modi replied that most of the earnings were spent on providing free Covid vaccines and free foodgrains to poor people across the country. While taxing petrol and diesel, the Centre did spend on public welfare schemes like providing free foodgrains to people during the pandemic. The Centre is bearing an extra burden of nearly Rs 1 lakh crore by extending the Pradhanmantri Anna Yojana (free foodgrains scheme) till September, 2022.

Maharashtra chief minister Uddhav Thackeray said, it was wrong on part of the Centre to put the burden on higher fuel prices on state governments. Thackeray said, VAT on petrol and diesel in Maharashtra is lesser compared to excise levied by Centre. Maharashtra minister Jitendra Ahwad alleged that the Centre has not yet released Rs 26,000 crore which was due to Maharashtra as part of GST collection. “Let the Centre pay the arrears first, and then give us advice”, he said.

A statement released from Maharashtra Chief Minister’s Office said, out of one litre diesel, Centre earns Rs 24 and the state government earns Rs 22. On one litre of petrol, centre takes Rs 31 as excise and state government takes Rs 32 as VAT.

West Bengal chief minister Mamata Banerjee said, the Prime Minister should not have spoken like this, as it goes against our federal structure. She said, most of the GST earnings go to the central government. Banerjee demanded that states must get 50 per cent of GST collections. “What our PM said today was one-sided, and the fact is that the Centre is not releasing money to the states”, she added.

While Congress has alleged that the Centre collected Rs 28 lakh crore as excise from petrol and diesel, Mamata Banerjee has put this figure at Rs 17 lakh crore. Nobody knows who is speaking the truth. The Congress spokesperson did not cite the source from which he gave this statistic, nor did Mamata Banerjee disclose her source. Jharkhand minister Banna Gupta said, if the Centre is worried about different rates of petrol and diesel in states, it should bring petrol and diesel under GST.

The fact remains that prices of petrol and diesel are rising continuously. BJP, Congress and Mamata Banerjee – all of them want the prices to be lowered, but none of them are ready to lower taxes. Everyone is pointing fingers at other. It is a fact that international crude prices have risen, and since India imports 80 per cent of its demand for crude oil, it is affecting the price structure here. This is having a bandwagon effect on the prices of essential commodities.

Now, whom should the common man ask? Two types of taxes are being levied on petrol and diesel, one by the Centre, and the other by states. Fuel prices can come down only if both the Centre and states lower taxes. In November last year, when crude prices went up, the Centre reduced excise duty on petrol and diesel, and most of the BJP-run government lowered VAT. But non-BJP governments did not follow suit. That is why while price of petrol in Lucknow today is Rs 105 per litre, it is Rs 120 per litre in Mumbai.

To bridge the gap, there is only one route: states must lower VAT. If there is a uniform price for petrol and diesel across India, the problem can be resolved forever. Or, the only way out is: bring petrol and diesel under GST like all other products and services.

Neither Mamata Banerjee nor Uddhav Thackeray are willing to either lower VAT or agree to bring petrol and diesel under GST. There lies the crux of the problem. To give relief to the common man, non-BJP-ruled states must lower VAT on petrol and diesel. Merely opposing Modi will not work.

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