Is it economically sensible for Balagopal to persist with two-rupee fuel cess?
The cesses on fuel and liquor were sold as a kind of 'social responsibility' obligation. These cesses were to flow into a fund that would pay welfare pensions to over 60 lakh people.
The cesses on fuel and liquor were sold as a kind of 'social responsibility' obligation. These cesses were to flow into a fund that would pay welfare pensions to over 60 lakh people.
The cesses on fuel and liquor were sold as a kind of 'social responsibility' obligation. These cesses were to flow into a fund that would pay welfare pensions to over 60 lakh people.
Thiruvananthapuram: As K N Balagopal presents his fourth Budget on Monday, his biggest challenge will be to mobilise additional resources to make up not just for the fall in central transfers but also for his government's failure to mop up adequate domestic revenues. The moot point is, in his desperation to find more money, can the finance minister keep burdening the public with more cesses, levies and fees?
In his last budget, Balagopal had announced an additional resource mobilisation of Rs 2,955 crore, the highest ever by a Kerala finance minister. This money he sought to collect mostly by fleecing the common man; a two-rupee hike in the prices of petrol and diesel, cess of Rs 20 to Rs 40 on a bottle of IMFL, 20 per cent increase in fair value, increase in one-time tax on vehicles and revision of various user and application fees.
The cesses on fuel and liquor were sold as a kind of 'social responsibility' obligation. These cesses were to flow into a fund that would pay welfare pensions to over 60 lakh people. Balagopal should now ponder whether he should persist with these as official figures suggest that the strategy has misfired.
From the two-rupee hike on fuel, he did not expect much, just Rs 750 crore annually. Till November 2023, Kerala has collected Rs 600 crore under this head and by March this year, the end of the 2023-24 fiscal, it could swell to even Rs 1,000 crore. Since the cess on liquor could fetch nearly Rs 175 crore annually, tipplers and car and two-wheeler users together would have pooled Rs 1,175 crore in the social security fund by the end of this fiscal.
Kerala's annual pension bill is Rs 11,000 crore, which works out to slightly over Rs 900 crore a month. Meaning, that the collection from the fuel and liquor cesses can easily meet a month's welfare pension payout; reasonable relief for a government so short of funds that it was forced to keep welfare pensions for the poor pending for four months.
The trouble is that this marginal gain can create heavy losses elsewhere. Just after the cess became operational from April 1, 2023, the sales tax component of Kerala's revenue, which depends substantially on the sale of petroleum goods, began to fall. (Petrol and liquor are the only goods that remain within the old sales tax regime and outside the GST.)
Last December, for which the latest Comptroller and Auditor General figures (provisional) are available, Kerala's sales tax collection was Rs 18,617.08 crore, just 62 per cent of the 2023-24 budget estimate of Rs 28,645.57 crore. Same time last fiscal, Kerala had managed to collect 73 per cent of its budget estimate.
Finance Department officials say that this unexpected fall could be the result of vehicles, especially in the border areas of the state, filling up from outlets in neighbouring states. Interstate vehicles virtually stopped consuming fuel from Kerala.
After the two-rupee cess, Kerala had the highest petrol prices in South India and the highest diesel prices in the country. At least a slight drop in sales could have been anticipated. Finance Department officials suspect that the fall in the anticipated sales tax from the sale of fuel would be higher than the collection from the fuel cess.
The liquor cess, too, seems to have an unintended consequence in a fall in excise duties. By 2023 December end, the collection was Rs 2,085 crore, which was 70 per cent of the estimated amount of Rs 2,975 crore. By the end of last fiscal's December, the collection was more than 80 per cent of the budgeted amount. There has been a drop in the sale of IMFL bottles though the number of Bevco outlets have gone up across Kerala.
An increase in the fair value of land, too, seems to have had a dampening effect. In 2023, the fair value was increased by 20 per cent, the biggest increase since 2018. By December, just 66 per cent of the budgeted revenue has been mopped up from the sector. In contrast, nearly 90 per cent of the budgeted revenue was collected by the end of December 2022.