Two days after the centre slashed excise duties on petrol and diesel, and with the opposition parties threatening mass action, it was expected that finance minister K N Balagopal would make some concessions, at least announce fuel subsidy for the worst affected.
But when he met the media on Friday, Balagopal made it clear yet again that Kerala was not going to reduce its sales tax on petrol and diesel. At the same time, he said that it should not go unnoticed that Kerala had proportionately reduced fuel prices; Rs 2.30 a litre for diesel and Rs 1.70 a litre for petrol.
Kerala's sales tax is an ad valorem rate, a percentage rather than a specific number. It is imposed on a value that includes the basic price of fuel and central levies like excise duty, special duties and cesses. Therefore, when the centre reduces excise duties, Kerala's sales tax will also fall in monetary terms even if the percentage remains the same.
The finance minister argued that this fall was not automatic. "States have the right to increase the sales tax percentage if they want to retain their sales tax collections at the earlier level. We decided against that and that was why there was a further reduction of prices in fuel," Balagopal said.
Giving this decision a political context, the finance minister said that the previous UDF ministry under Oommen Chandy had increased the sales tax 13 times while reducing it six times. The net effect was that by the time the Chandy dispensation bowed out, the sales tax on petrol was 31.8% and that on diesel was 24.52% , which Balagopal said was higher than the rates fixed by the Achuthanandan ministry that preceded it.
Balagopal said in the last six years the LDF government had not increased the sales tax percentage. "But we reduced it once, bringing it below the levels fixed by the UDF government, " he said. Thus, the existing sales tax on petrol and diesel are 30.08% and 22.76%.
Balagopal suggested that Kerala could not afford a further reduction. He said the government's sales tax collection was no match for the soaring government expenditure as a consequence of high fuel price.
Balagopal also argued that the growth in sales tax collection was considerably low compared to the takings of the Oommen Chandy government. In the five years under Chandy, sales tax collection from fuel sales rose to Rs 6100 cr from Rs 3138 crore, a 94% increase. In the five fiscals of the first Pinarayi Vijayan ministry, it went from Rs 6876 crore to Rs 7907 crore, a mere 15% increase.
Further, the finance minister complained that the Centre was robbing the states by imposing fat special duties. "The basic excise duty has to be shared with states, not the special additional excise duty and cesses. So what the BJP government did was lower the basic excise duty (in the case of petrol from Rs 8 to Rs 1.40 a litre) and increase the special duties, " Balagopal said.
He also argued that this was against the federal spirit of the Constitution. "The Centre imposes these surcharges on the basis of Article 271 of the Constitution. But such levies, which are to be imposed in times of emergencies like war or natural disaster or pandemic, have to be a small amount, not greater than the basic excise duty that is shared with the states, " he said. "Now most of the money they collect from people need not be shared with states, " he added.
After the latest reduction, the excise duty on a litre of petrol is Rs 27.9. Of this only the basic excise duty of Rs 1.40 (a paltry 5%) needs to be shared with states. In the case of diesel, only Rs 1.80 (8.25%) of the excise duty of Rs 21.8 needs to be shared with states.
