Centre and states: Sitharaman reveals 'implication' of duty cut on fuel

Decision to cost Rs 1,00,000 cr a year for central government, says Finance Minister after 'criticism/appraisal' of decision.

Finance Minister Nirmala Sitharaman said Saturday’s cut on levies on pump prices of petrol and diesel "has an implication" of Rs 1,00,000 crore annually for the central government, responding to "criticism/appraisal" from Opposition-ruled states and independent experts.

The government slashed central excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 litre, a move that will bring relief as household incomes continue to be hit by inflation.

Sitharaman, writing on Twitter yesterday, said that this will reduce the price of petrol by Rs 9.5 per litre and of diesel by Rs 7 per litre. This will lead to revenue foregone for the centre of about Rs 1 trillion per annum, she said, and asked states to also reduce their duties on petrol and diesel.

Tamil Nadu’s DMK government on Sunday said the tax were 'partial' and "it is neither fair nor reasonable to expect States to reduce their taxes." State Finance Minister Palanivel Thiaga Rajan said the central government had never consulted states when it increased the taxes and Tamil Nadu was already incurring loss of over Rs 1,000 crore due to the earlier tax cut announced by the union government in November 2021.

"The duty reduction made yesterday has an implication of Rs 1,00,000 cr a year for Centre. The duty reduction made in November’21 has an implication of Rs 1,20,000 cr a year for Centre. Total revenue implication to Centre, on these two duty cuts is thus Rs 2,20,000 cr a year,” said Sitharaman on Sunday in a Twitter thread, pointing out her government will bear the bill for revenue loss.

"Basic Excise Duty (BED), Special Additional Excise duty (SAED),Road & Infrastructure Cess (RIC) and Agriculture & Infrastructure Development Cess (AIDC) together constitute Excise Duty on petrol and diesel. Basic ED is sharable with states. SAED,RIC & AIDC are non-sharable," she said.

The central government will probably borrow the entire 1 trillion rupees as revenues due to the duty cut, Bloomberg reported quoting sources.

Higher collections from the goods and services tax as well as personal income taxes will be neutralized by additional spending on food and fertilizer subsidies that the government is giving to the poor and farmers, said Bloomberg.