Tax the poor to fill the coffers

Santosh Kumar Mohapatra

F.Fuel prices, which have risen sporadically recently, have surpassed the inglorious Rs 100 per liter mark in some cities. If the pandemic has devastated lives and livelihoods, undermined people’s purchasing power and dampened demand, the government’s reluctance to cut oil prices reflects its cruelty towards the masses. The government blames the rising international crude oil prices, which are complete window dressing. The main villain is taxes levied by both the center and the states.

It is argued that since the deregulation of oil prices, retail prices have increased along with the rise in international prices and the government cannot regulate this. However, during the election, the government regulates prices, stops increasing them so as not to anger voters, but allows the market to determine prices after the election. Fuel prices depend primarily on international crude oil prices, the rupee-dollar exchange rate, the excise tax levied by the center, and the state sales tax / sales tax. Dealer commission and freight costs are also added to the fuel price.

The main reason for the rise in oil prices is the increase in excise taxes from March 2020 to May 2020 when the international oil price per barrel fell below $ 20. For example, in 2014 the consumption tax on diesel was 3.56 rupees and that on gasoline was 9.40 rupees. Now the center’s tax (excise duty, surcharge, agriculture, infrastructure and development) is currently 31.83 rupees / liter for diesel and 32.98 rupees / liter for gasoline. Together with the VAT that varies from state to state, they make Indians some of the most heavily taxed fuel consumers in the world.

Fuel taxes are significantly higher in India than in other countries. According to CARE Ratings, as of May 6, 2020, the government was able to collect around 260 percent of taxes (consumption tax and VAT) on the base price of gasoline and 256 percent in the case of diesel. By 2019, taxes made up 50 percent of the sales price of the two fuels in India. As of May 2020, taxes made up over 69 percent of the sales price of the two fuels, which is the highest in the world. Taxes make up 63 percent of the retail price of fuel in France and Germany, 64 percent in Italy, 62 percent in the UK, 53 percent in Spain, 47 percent in Japan, 33 percent in Canada, and only 19 percent cents in the US. 71.8 percent of the total taxes on diesel and 60.1 percent of the total taxes on petrol are now due to the central levies in the state capital. This shows that the center taxes more than states.

Compared to India, gasoline is cheaper in neighboring countries. In February 2021, the retail price of gasoline per liter in Pakistan was 51.14 rupees, Sri Lanka 60.26 rupees, Bangladesh 76.41 rupees, Nepal 68.98 rupees and Bhutan 49.56 rupees. Even in the US it was 54.65 rupees per liter. The average world gasoline price is Rs 78.71, which is at least 20 percent cheaper than the Indian average.

In 2014-15, the center collected revenues of Rs 99.068 billion as excise duties on petroleum products, while all states combined Rs.137.157 billion as sales tax / VAT. moved in. In 2019-20 the center raised Rs 2.67 lakh crore while all states together raised Rs 200,439 crore.

The center is expected to collect Rs 3.9 lakh crore in the 2020-21 period despite the decline in gasoline and diesel consumption. The center earned around Rs 1.80.788 billion in 2020-21 due to gigantic excise tax increases. Central consumption taxes on petroleum products, which made up 8 percent of gross tax revenue in 2014-15, rose to 11 percent in 2019-20. These account for a fifth of India’s gross tax revenue of 20 lakh crore in the period 2020-21.

It is argued that the resources generated from fuels are spent on welfare programs. However, funds generated by any means can be spent on welfare systems. It’s like taxing the poor to fill the coffers. The countries that have much less taxes on petroleum products also have much higher tax rates and colossal development spending. Rising fuel prices not only lead to inflation and a loss of purchasing power, but also have a cascading effect on the economy.

The bitter truth is that the government’s inability to tax the rich and corporations and its failure to curb tax evasion has diminished its resource generation capacity. So it is easy and convenient to raise resources by increasing taxes on petroleum products without realizing the suffering of the masses.

It is argued that by dividing them into a divisible pool, states will benefit from rising fuel prices. In fact, as part of our federalism, the center has to make resources available to the states as they spend more. It is argued that states should lower VAT. However, states cannot lower VAT because they have limited fundraising opportunities while the center has unlimited fundraising opportunities.

Some argue that fuel prices should fall within the purview of the GST at a maximum rate of 28 percent in order for the price of fuel to decrease. But without including it in the GST, both the center and states can lower oil prices through tax cuts. It should be noted that when states introduced the GST, they were reluctant to accept it. They reached an agreement on the condition that petrol and diesel be kept out of the GST’s area of ​​responsibility. So the center is now advocating including gasoline and diesel in the GST just to blame the states.

Not only have the fuel prices skyrocketed, the price for cooking gas / LPG has also doubled in seven years and subsidies have disappeared. An LPG refill that cost 410.50 rupees / cylinder on March 1, 2014, cost 819 rupees in March 2021. The fuel subsidy provided for in the budget has also been drastically reduced. It was cut in the current budget year from Rs 40,915 crore estimated last year to Rs 14,073 crore.

In 2020-21, the combined net income of listed companies rose 57.6 percent to 5.31 million rupees. As a result, corporate earnings share of Indian GDP reached a 10-year high of 2.63 percent in the past fiscal year. The number of billionaires and their fortunes increases every year. It is high time to lower taxes on petroleum products and to impose wealth taxes on the rich, the corporations.

The author is an Odisha-based economist and columnist.