A tax burden that attacks the federal rights of States

Context: The Centre’s levy of fuel surcharges is way beyond basic taxes and an abject misuse of provisions of the Constitution.

Issues with surcharges and cesses levied by Centre

• Misuse of provisions of Constitution: Constitution permits the Centre to levy cess and surcharges beyond the basic taxes and duties in extraordinary situations through Article 271.
  • But exorbitant special additional excise and cess on petrol and diesel is misuse of constitutional provisions.
• Attack on people: As these additional taxes puts high burden of taxes on people.
• Way beyond basic taxes: Surcharge is defined as a small amount of tax levied over and above the existing tax. But, current cess on petrol and diesel is seven or eight times higher than the basic tax.
  • Centre has been levying around Rs 31 and Rs 33 as additional cess on petrol and diesel.
• Undermining federalism: Cess and additional excise duty on petroleum products constitute around 95% of the total revenue from petroleum, which are not to be shared with the States at all. Petroleum Planning and Analysis Cell (PPAC) data shows that-
  • Union government has collected around Rs 3.72-lakh crore in 2020-21 as revenue from petroleum products. 
  • Of this, only around Rs 18,000 crore is collected as Basic Excise Duty. 
  • The divisible pool is only 41% of this Rs 18,000 crore.
• Obtuse use of fiscal federalism: After the implementation of Goods and Services Tax (GST), States have the right to decide the taxes on just three goods only — petrol, diesel and liquor.
  • By unilaterally taking away the bulk of the tax revenues on petrol and diesel, the Centre has done injustice to the States.
• Surge in tensions between centre and opposition ruled states: that was witnessed when Narendra Modi Government reduced excise duty on petrol and diesel on the eve of Deepavali.
• Allegation of crony capitalism: There are voices in certain sections of opposition that sops given to corporate houses resulted in huge revenue losses for Centre. 
  • To compensate for this, the Centre is exploiting people during a pandemic by levying taxes on petrol and diesel to the maximum possible extent. 

Way forward:

• Implementation of democratically decided taxes that was promised during GST and detailed analysis of the fact that why States are losing revenue. 
• Maintain revenue neutral rate: Streamline GST to ensure RNR, without hurting the common people.
• On an average, the country collects Rs 1-lakh crore a month as GST — Rs 12-lakh crore in a year; Rs 6-lakh crore each for the States and the Centre. 
• Had RNR been maintained, the total amount would have been Rs 18-lakh crore at the rate of 16%. States would have received at least Rs 3-lakh crore additionally.

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