Entire petro tax cuts’ burden being borne by Centre, says Nirmala Sitharaman

Union Finance Minister Nirmala Sitharaman, on Sunday, said that the entire duty reduction in petrol and diesel announced on Saturday has been done out of the Road & Infrastructure Cess (RIC) component of the taxes levied on petroleum products so the entire burden of the tax cuts will be borne by the Centre,

Allaying concerns that the duty cuts will lower the devolution of taxes to States, Ms. Sitharaman said that the basic excise duty on petro products, which is sharable with States has not been touched.

The Union Minister’s remarks come on the back of some States and Opposition leaders criticising her exhortation that they should follow up these duty cuts by slashing State-level levies on fuel products.

Former Finance and Home Affairs Minister P Chidambaram pointed out that the situation for States was akin to being between “the devil and the deep sea”, as they are getting very little by way of share of petroleum duties.

“Their revenue is from VAT on Petrol and Diesel… I wonder if they can afford to give up that revenue unless the Centre devolved more funds or gave them more grants,” he noted.

Tamil Nadu Finance Minister Palanivel Thiaga Rajan reacted by stating that the Union Government didn’t inform or ask States’ views while increasing central taxes on Petrol by about ₹23 a litre (+250%) and by around ₹29 a litre (+900%) on diesel since 2014. “Now, after rolling back ~50% of their increases, they’re exhorting States to cut,” he said in a tweet, stressing it was an unfair and unreasonable expectation.

“Good to see the interest generated by @PMOIndia @narendramodi ‘s decision yesterday to bring an Excise Duty cut on petrol and diesel,” she said in a tweet, before sharing ‘some useful facts’ which could benefit the ‘criticism and appraisal’ of the tax cuts.

The total taxes levied on petrol and diesel include a Basic Excise Duty (BED), a Special Additional Excise duty (SAED), the Road & Infrastructure Cess (RIC) and the Agriculture & Infrastructure Development Cess (AIDC), of which only the BED is sharable with States, the minister pointed out.

Ms. Sitharaman said that the duty cuts announced in November 2021, of ₹5 per litre of petrol and ₹10 per litre of diesel, were also made entirely in the Road and Infrastructure Cess component of petroleum taxes.

The total revenue implication to Centre, on these two duty cuts is ₹2,20,000 crore a year, the Finance Minister noted, before emphasising that spending on development and subsidies has accelerated under Prime Minister Narendra Modi’s government.

RBI data shows total developmental expenditure incurred from 2014 to 2022 was ₹90.9 lakh crore. In contrast, only ₹49.2 lakh crore was spent on developmental expenditure during 2004-2014, she said.

“The expenditure incurred by our government so far includes ₹24.85 lakh crore spent on food, fuel and fertiliser subsidies and ₹ 26.3 lakh crore on capital creation. Over the 10 years of UPA, only ₹13.9 lakh crore was spent on subsidies,” she concluded.