Not fair or reasonable to expect States to reduce taxes on fuel, says T.N. Finance Minister

Reduction in excise duty on petrol and diesel by Centre will result in an additional loss of around ₹800 crore for Tamil Nadu, says Palanivel Thiaga Rajan

Tamil Nadu is unlikely to further reduce taxes on fuel. Indicating this, State Finance Minister Palanivel Thiaga Rajan on Sunday pointed out the reduction in excise duty on petrol and diesel announced by Finance Minister Nirmala Sitharaman on Saturday would result in an additional loss of around ₹800 crore in annual revenue for Tamil Nadu. Therefore, he argued, it was neither fair nor reasonable to expect States to reduce their taxes on fuel since the Union government never consulted the States when it increased the taxes multiple times.

In a statement, Mr. Thiaga Rajan said the tax cuts announced in November 2021 had caused an additional loss of about ₹1,050 crore in annual revenue to Tamil Nadu. The recent cut would put a huge strain on the finances of the State.

On Saturday, announcing a reduction in excise duty on fuel, Ms. Sitharaman had exhorted States to reduce VAT on fuel.

Mr. Thiaga Rajan said though the DMK government inherited a precarious fiscal position from the AIADMK government and incurred additional expenditure towards COVID-19 relief activities, it [last year] reduced the taxes on petrol in a few months after assuming office. “Tamil Nadu, despite its limited taxation powers, has taken proactive measures to reduce the tax burden on the people of the State,” he said.

He pointed out that even before the Union government first reduced its taxes on petrol and diesel in November 2021, the DMK government had cut the VAT on petrol in August 2021. “That cut resulted in a relief of ₹3 per litre to the people of Tamil Nadu. The State government would incur a loss of ₹1,160 crore annually due to this reduction. Yet this was done, despite the financial strain inherited from the previous government, to reduce the burden on the people of Tamil Nadu,” he said. He added that during the 2006-11 regime too, the DMK government had cut taxes on petrol and diesel.

In the past seven years the Union government’s levies on petrol had gone up substantially resulting in a manifold increase in its revenues but the States did not see a matching increase in their revenues. “This is because the Union government has increased the cess and surcharge on petrol and diesel while reducing the basic excise duty that is shareable with the States,” the Minister said.

With the recent cuts, the Union government’s taxes on petrol was ₹19.90 per litre and ₹15.80 per litre for diesel, but was still higher than the 2014 rates by ₹10.42 per litre on petrol [was ₹9.48 per litre in 2014] and ₹12.23 per litre for diesel [was ₹3.57 per litre in 2014], he said adding that there was a ‘strong case’ for the Union government to further reduce its taxes.