Fuel price hike: Finance minister Thomas Isaac inflates sales tax cut impact

Thiruvananthapuram: Finance minister Dr T.M. Thomas Isaac’s constant refrain that even a minor reduction in sales tax on petroleum products will decimate the state’s impoverished economy does not sound convincing under the GST regime.  Now, unlike in the VAT period, the state has been assured a 14 percent growth in tax revenue. Meaning, even though the state’s GST collection is a pitiable 5.44 percent at the moment, Dr Isaac need not worry as the Centre will transfer enough money to raise the growth to 14 percent, which incidentally is the highest tax growth rate since 2012-13.

On the other hand, the burden is piling up on the common man. Diesel price in the state has touched an all-time high, and is now higher than all the four metros. In the case of petrol, the price is higher than in all metros except Mumbai.  As the people suffer, the state is making a windfall from the sales tax on petroleum products.  The revenue from this was Rs 7795.87 crore for the just concluded 2017-18 fiscal, up from Rs 6899 crore during the 2016-17 fiscal. Among the 43 Indian states, Kerala has the sixth highest sales tax and other state levies on petrol at 34.06 percent; it is highest in Mumbai at 39.95 percent (down from 48.98 percent recently). 

It also has the sixth highest sales tax and other state levies on diesel, at 26.90 percent; Andhra Pradesh imposes the highest at 28.60 percent (it had recently reduced it from 30.82 percent). The retail selling price of petrol in the state ('77.90 a litre on April 3) is more than all metros except Mumbai, where the price is 81.80. That of diesel ('70.34 a litre on September 15), however, is more than all the four metros (Delhi, Mumbai, Chennai and Kolkata) by at least Rs 2. Given that there is an assured GST growth and a growing revenue from petroleum sales tax, Dr Isaac looks in a position to forego Rs 800- Rs 1000 crore by way of a minor cut in sales tax and ease the mounting burden on the common man. 

Nonetheless, the finance minister is in no mood to relent. The minister’s top aide said that it would be impractical to reduce the sales tax. “Assume we reduce the sales tax by two percent. What if the prices go down? To make it revenue neutral we will have to the hike the sales tax. But this back and forth will be an accounting nightmare,” the aide said. The solution: “The Centre should bring down its excise duty. The state’s tax will automatically fall as our tax is linked to the base price of petroleum and the Centre’s excise duty.” Further, it is argued that a 14 percent increase in tax is no big deal.”We have estimated a GST growth of 20 percent, which looks a big task. So any reduction in the sales tax will further curtail the fiscal space of the state, affecting social welfare spending” the aide added.