States Should Also Reduce VAT On Petrol And Diesel
The India Commentary view
View all posts by this Author
By Our Editorial Team
First publised on 2022-05-22 10:18:18
About the Author
The India Commentary view
View all posts by this Author
When
Finance Minister Nirmala Sitharaman announced cuts in excise duty on petrol and
diesel and exhorted states to cut VAT on fuel to further reduce the burden on
the common man, Congress leader and former finance minister P Chidambaram
jumped the gun and said that since the excise duty collected is shared between
the states and the Centre, the cut announced by the Centre would mean lower
revenues for states and to expect them to cut VAT on top of that is expecting
too much as states will lose revenue twice. He jumped the gun because he made
this statement before studying the excise notification. The government has made
the cut under the head 'Additional Excise Duty' which goes solely to the Centre
and is not shared with the states. Hence, there would be no loss of revenue for
states from the present cut in excise duty. The Centre is going to lose revenue
to the tune of over Rs 1 lakh crore per year on account of the present cut.
Chidambaram
later said that he stands corrected after seeing the exact notification. But
for a seasoned politician who has been finance minister, it was not proper on
his part to make an adverse comment without studying the exact notification or
reading between the lines when it was said that the Centre would lose Rs 1 lakh
crore after the cut. Coming from someone else, this could have been construed
as fake news or rumour mongering. He has now said that the states are caught
between "the devil and the deep sea" as if they reduce VAT on fuel, they will
need to be compensated by the Centre as they have no other way to augment
revenue. But that is no solution as the Centre is already going to lose huge
revenue and cannot be expected to compensate the states. If the opposition
ruled states cannot lower VAT (Kerala is an exception as it has already
announced a cut in VAT) even after the Centre reduces excise duty, they have no
right to blame the Centre for the high price of petrol and diesel and ask it to reduce excise duty again and again.
The Centre
is right in exhorting states to lower VAT. This is the second time after
November 2021 that the Centre has reduced excise duty on petrol and diesel to
arrest the price rise due to extraneous reasons without matching cuts from some
opposition-ruled states. The global price of Brent crude is still hovering
around $112 per barrel with little or no sign of prices easing in the immediate
future and with inflation also showing no signs of going away in a hurry, the
government cannot leave the entire inflation taming exercise to the RBI and monetary
policy. It has taken a big step. Now it is upon states to come forward and do
their bit to further ease the burden on the common man.
