Why Modi Should Not Ask States To Reduce VAT On Petrol And Diesel

The price of petrol and diesel has got prime minister Narendra Modi worried. In a virtual interaction with chief ministers on Wednesday, the Prime Minister pointed out that many states had not heeded the advice of the Centre to bring down VAT (Value Added Tax) on fuel prices. This, according to the Centre, was causing inflation in the country. As expected, the states run by non-BJP parties did not like this criticism. They hit back at the Centre, saying that the government had not cleared their dues over the last many years and New Delhi had no right to talk about taxes with the states.

West Bengal Chief Minister Mamata Banerjee and her Maharashtra counterpart, Uddhav Thackeray, attacked the Prime Minister saying the Centre had been discriminating against the non-BJP states by allocating less funds to them.

Congress leader Rahul Gandhi said that Prime Minister’s ‘Federalism is not Cooperative but coercive’. The February issue of Outlook Business covered the issue of rising differences between the state governments and the Centre over the issue of revenue share.

How Centre Has Short-Changed States

The Centre had guaranteed a 14 per cent annual growth rate in GST revenue to the states from July 2017 for a period of five years with 2015-16 as the base year. This amount was to be collected with the help of the GST compensation cess. But except for the first two years, the Centre has not been able to keep its promise. In the later years, it extended interest-free loans to the states.

Apart from this, the Centre has also been reducing the share of states in the central pool of taxes. Between October 2019 and January 2021, the Centre’s tax on diesel grew from Rs 15.83 per litre to Rs 31.83 per litre, the corresponding figure for petrol rising from Rs 19.98 per litre to Rs 32.98 per litre. But the divisible pool of the taxes in this portion of taxes on diesel and petrol, which comes from the basic excise duty, remained static at Rs 4.83 and Rs 2.98 respectively. 

Read the Full story on ‘Cracks In Fiscal Federalism’, here:

https://business.outlookindia.com/the-big-story-1/lead-story-8/one-nation-many-burdens-6480