Responding to Prime Minister Narendra Modi’s request to certain States, including Tamil Nadu, to cut taxes on fuel, Finance Minister Palanivel Thiaga Rajan said on Wednesday that it was neither fair not feasible for the State government to reduce taxes further, given that the Union government’s taxes remained exorbitant.

“We reiterate that the sole, simple and fair approach to improving the situation for all, is for the Union government to remove the levy of cesses and surcharges and revert to the rates that prevailed in 2014,” the Minister said in a press release. “We hope that the Union government will heed this reasonable request in the true spirit of co-operative federalism,” he added.

The Tamil Nadu government had repeatedly urged the Union government to reduce the cesses and surcharges and merge them with the basic tax rates so that the States got their rightful share from the proceeds of the Union government taxes, he said.

‘TN reduced VAT on petrol before Centre stepped in’

Contrary to the Prime Minister’s remarks, the Tamil Nadu government had, in fact, cut VAT on petrol in September 2021, prior to the Centre’s action, he pointed out, and added that the cut resulted in a relief of ₹3 per litre to the residents of Tamil Nadu. “It was estimated that the State government would incur a loss of ₹1,160 crore annually due to this reduction. Yet, this was done despite the financial strain inherited from the previous government, to reduce the burden on the people,” the Minister said.

On the other hand, the Union government’s levies on petrol had gone up substantially in the past 7 years since the Prime Minister took charge for the first time in 2014. Though the Union government’s revenue had increased manifold, there had not been a matching increase in the States’ revenue, he said. “This is because the Union government has increased the cess and surcharge on petrol and diesel while reducing the basic excise duty that is shareable with the States,” he contended.

In November last year, the Union government announced a tax reduction of ₹5 per litre on petrol and ₹10 per litre on diesel. Since Tamil Nadu levies ‘ad valorem’ taxes, which are applied after Union taxes, this move by the Union government causes an additional loss of about ₹1,050 crore in annual revenue to Tamil Nadu, the Minister pointed out.

In August 2014, the basic price was ₹48.55 per litre for petrol and ₹47.27 per litre for diesel. On November 4, 2021, the basic price of petrol was ₹48.36 per litre while that of diesel was ₹49.69 per litre. On August 1, 2014, the Union government taxes were ₹9.48 per litre on petrol and ₹3.57 per litre on diesel. At that time, the State government taxes were ₹15.67 per litre on petrol and ₹10.25 per litre on diesel, he said.

Prior to the reduction of taxes on petrol and diesel by the Union government, the levy of tax, including cesses and surcharges, by Union government was ₹32.90 per litre on petrol and ₹31.80 per litre on diesel. “This has been reduced to ₹27.90 per litre for petrol and ₹21.80 per litre for diesel after the cut. So, when compared to 2014 (when the basic price was roughly the same), the Union government still levies an additional tax of ₹18.42 per litre for petrol (an increase of roughly 200%) and ₹18.23 per litre for diesel (an increase of over 500%), compared to the taxes in effect when it took office in 2014,” the Minister said.