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What The Modi Government Doesn’t Want You To Know About Petrol Tax

Decoding the truth.

22/09/2017 12:33 PM IST | Updated 25/09/2017 4:38 PM IST
Pawan Kumar / Reuters

With the recent increase in the price of fuel, the IT cell of the BJP has been using social media to circulate an infographic explaining the retail selling price of petrol. Given that we are living in a world where even government data needs scrutiny, it goes without saying that we need to take a closer look at information being promoted by a political party.

The infographic shows that the retail selling price of petrol in Delhi on 16 September was ₹70.48 per litre, and that the tax components were divided between the state and Union as follows:

Delhi government: ₹27.44/ltr

Central government: ₹12.46/ltr

This prima facie creates an impression that Delhi enjoys more than double the petrol tax than the Centre.

But it's not quite as it seems.

First, the above claim is marred by an arithmetical error. Simple addition of state VAT of ₹14.98 with the purported Central share of excise duty of ₹9.02 gives only ₹24.00, not ₹27.44 as depicted in the above infographic. This may be an inadvertent error due to oversight.

The narrative that each state government gets 42% of the excise duty collected by the Central government is not true.

The next question is more important—is 42% of central excise duty transferred to the state government or not? Is it an act of goodwill by the Big Brother, i.e. the Centre? Not really, but it's mandated by our Constitution—See article 270, which deals with sharing of the taxes collected by the Union with the States.

Constituent Assembly debates give greater historical perspective to this article. On 5 August 1949, while discussing this article, Sri. B. Das did not mince his words:

"Sir, I do hope the provinces will not be treated as charity boys of the North Block of the Secretariat. Somehow it has happened that people have to come with begging bowls. Whether it is in regard to the Food Commission or the Bengal food problem of 1943, nobody wants charity. We put forth the just demands of the people of India and the Centre, which was an autocratic government intended to maintain the British Raj in the past should give up that mentality and should part with the legitimate resources to the provinces. I do not ask any further and I do not at present ask anything more."

Sharing of taxes collected by the Centre with the states is very much part of the federal structure envisaged under the Constitutional scheme. The President of India under Article 280 appoints a Finance Commission every five years. This Commission recommends how the taxes under the "divisible pool" have to be divided among the states. But surcharge and cess collected by the Centre are not forming part of the divisible pool.

The 14th Finance Commission Report recommended that 42% of the taxes collected by the Centre belonging to the divisible pool should be shared with the states.

Then, it is evident from the above table that each state is getting a certain percentage share from this total 42%. Hence, adding the entire 42% of excise duty to a single state, as shown in the infographic, is misleading. For example, Kerala receives 2.5% of this total 42%.

Neither Delhi nor the other Union territories find a place in this table. This is because Articles 270 and 280 deal with only sharing of revenue among the Union and states. Without either full statehood or amendment of the above articles, Delhi is not eligible to get a share from this divisive pool. So as far as Delhi is concerned, their income from the petrol tax is limited to VAT alone, i.e. ₹14.98.

The next question is whether the Centre shares the entire excise duty of ₹21.48 with the states or not? This ₹21.48 per litre excise duty on petrol consists of three components:

Basic CENVAT duty: ₹8.48/ltr

Additional excise duty: ₹6.00/ltr

Special additional excise duty: ₹7.00/ltr

Additional excise duty introduced through the Finance Act (No.2), 1998, is known as "road cess." Sub section (4) of Section 111 clearly states this shall not be distributed among the states.

The special additional excise duty introduced through Sub Section (1) of Section 147 of the Finance Act, 2002, explicitly makes it clear that this is for the exclusive purpose of the Union and it is a surcharge.

If any further doubts remain, scanning this year's budget documents(see Annexure – 9 on Page 44 of Receipt Budget 2017-18) will clear the air. Basic and special excise duties, excluding cess on motor spirit and high speed diesel oil, anticipated is ₹2,40,000 crores and the share kept aside from this excise duty for states-wise distribution is ₹99,477 crores (41.5%)

From the receipt budget, it is evident that the Central government collects the following duties in addition to the above excise duty, but which are not shared with states.

James Wilson

It is now amply clear that the share due to all states from the petrol tax in the divisible pool only consists 42% of the basic excise duty of ₹8.48/ltr, i.e. only ₹3.56 and the Centre retains ₹17.92, which is amounting to 83.4% of the total excise duty of ₹21.48.

Hence, the amount of ₹12.48 shown as the share of Central Government in the infographic is misleading. As an example, Kerala gets just 2.5% of this ₹3.56, i.e., only 8.9 paise from the excise duty instead of ₹9.02 propagated by the BJP IT cell.

Incidentally, another infographic by the BJP suggests that Kerala and Delhi charge 34% and 27% VAT on petrol. But they conveniently ignore the fact that BJP-ruled Maharashtra charges 46.52% and Madhya Pradesh charges 38.79% VAT.

In summary

  • The narrative that each state government gets 42% of the excise duty collected by the Central government is not true.
  • Each state gets a share of taxes from the divisible pool based on the percentage share as per 14th Finance Commission.
  • The Union government only shares 42% of the basic excise duty and not the additional excise duty and special additional excise duty with the states.

The opinions expressed in this post are the personal views of the author. They do not necessarily reflect the views of HuffPost India. Any omissions or errors are the author's and HuffPost India does not assume any liability or responsibility for them.

This post was first published here.

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