The COVID-19 review meet with chief ministers turn into a Centre vs states, when Prime Minister Narendra Modi brought up the issue of rising fuel prices and request states to reduce the Value Added Tax (VAT) on fuel “in the spirit of cooperative federalism”.
PM Narendra Modi list out prices of petrol and diesel in the cities and highlight the states which had lower VAT have lower fuel prices compare to the rest.
PM Narendra Modi Said :
“I am not criticising anyone but request Maharashtra, West Bengal, Telangana, Andhra Pradesh, Kerala, Jharkhand, Tamil Nadu to reduce VAT now and give benefits to people,”.
“I am appealing to you for the welfare of your people, in national interest, please reduce VAT for the benefit of your people. What was to be done was not done, but please cooperate now.”
After the meeting, some of the states hit back at Prime Minister Narendra Modi.
Uddhav Thackeray and Mamata Banerjee both criticise PM Modi, saying his statement was ‘misleading’.
Today we present this article as to why fuel prices vary from state to state and why the Centre and states have often clash on this issue.
Taxes on Fuel
Fuel prices in India vary each month or even every day due to external factors like global crude oil prices.
Internal factors like taxes and dealers’ commissions also impact the price of domestic petrol.
Another notable fact is that the prices of petrol and diesel vary from state to state and even from city to city.
For Example, petrol in Delhi is retailing at Rs 105.41 per litre on Thursday, and in Mumbai, it costs Rs 120.51.
The rate of diesel is Rs 95.87 per litre whereas it costs Rs 104.77 in the financial capital.
This difference in fuel retail prices in two cities is due to the different tax rates levied by the respective state governments on the same products.
It is also important to note that tax on fuel does not fall under the GST or Goods and Services Tax.
Taxes on petrol and diesel are split into multiple components at the state and central level.
At the Centre, some taxes are fix, others are ad valorem, which means the tax is impose as a share of the price of the commodity.
Same, the state taxes are also a mix of ad valorem and fix.
In many states, the ad valorem taxes have an upper limit, which means that even when prices increase beyond a point, taxes do not increase.
How Much do States and Centre Earn from Fuel?
Petrol and diesel are two of the most highly tax goods in the country and bring in huge revenues to both the Central and state governments.
Finance Minister Nirmala Sitharaman had told Rajya Sabha in 2021 that the Centre had earn around Rs 8 lakh crore from taxes levied on petrol and diesel in the last three financial years.
Out of the total amount, more than Rs 3.71 lakh crore was collect in 2020-21 itself.
To gain a better understanding of how fuel is tax in India see below how much tax is paid for Rs 100 of petrol in various states in India.
Government data collated by Stats of India show that in 7 states, half of the price of petrol is collect as tax.
This includes Maharashtra at Rs 52.5, Andhra Pradesh at Rs 52.4, Telangana at Rs 51.6, Rajasthan at Rs 50.8, Madhya Pradesh at Rs 50.6, Kerala at Rs 50.2 and Bihar at Rs 50.
The data show that the states/union territories with the lowest taxes are Andaman & Nicobar Islands and Lakshadweep, Puducherry, Meghalaya, Mizoram and Arunachal Pradesh.
What did Prime Minister Narendra Modi Say?
The issue of fuel taxes was raise when Prime Minister Narendra Modi accuse some states of doing “injustice” to the people by not reducing tax on petrol and diesel during the COVID-19 review meet.
PM Modi call out the states of Maharashtra, West Bengal, Telangana, Andhra Pradesh, Kerala, Jharkhand, Tamil Nadu in the matter and adds that he did not wish to engage in a debate about how much these states earned in terms of revenue in the past six months, but merely want the people to be provide benefits.
PM Modi’s statements didn’t go down well and quickly became a flashpoint.
Maharashtra chief minister Uddhav Thackeray said the Centre owe Rs 26,500 crore to the state and also alleged the Modi government of giving a step-motherly treatment to Maharashtra, as per a PTI report.
Uddhav Thackeray Said :
“The Union government owes Rs 26,500 crore to the Maharashtra government. Maharashtra’s contribution in direct taxes collection at the national level is 38.3 per cent and its share in the GST (collection) is 15 per cent, but the Centre gives us step-motherly treatment”.
“I am sharing the details with public out of concern. Maharashtra gets 5.5 per cent share of the total central taxes on various items. If the VAT and central taxes are combined, Maharashtra collects maximum amount in the country.
“Despite being the top contributor, Maharashtra is neglected by the Union government,”.
Uddhav Thackeray also that on one litre of diesel sold in Mumbai, the Centre gets Rs 24.38, while the state receives Rs 22.37.
The same share on one litre of petrol sold in Mumbai is Rs 31.58 and Rs 32.55, respectively.
West Bengal chief minister Mamata Banerjee also slam the prime minister, saying his remarks were misleading.
Mamata Banerjee said while addressing reporters at the state secretariat as quote by PTI.
“Today’s interaction with Prime Minister Narendra Modi was completely one-side and misleading. The facts share by him were wrong. We have providing a subsidy of Re 1 on every litre of petrol and diesel for the last three years. We have spent Rs 1,500 crore on this,”
