PM Modi calls out Opposition-ruled states, says some didn't cut fuel tax

PM: States did 'injustice' to people by not passing on benefit of Centre's excise duty cut

It was a meeting with chief ministers of states on the Covid-19 situ­ation in the country. However, Prime Minister Narendra Modi brou­g­ht up a rather touchy topic with reg­a­rds to Centre-state relations: fuel prices.

Calling out Opposition-ruled states by name, Modi on Wednesday said some states did not reduce the value-added tax (VAT) on petrol and diesel despite the excise duty cut by the Centre last November and did “injustice” to the people by not transferring the benefits of the move to them.

“Some states reduced taxes but some states did not give any benefit of this to the people. Due to this, the prices of petrol and diesel in these states continue to remain high. In a way, this is not only injustice to the people of these states but it also has an impact on neighbouring states,” he said.

Modi said that many states like Maharashtra, West Bengal, Telangana, Andhra Pradesh, Tamil Nadu, Kerala and Jharkhand did not reduce VAT or state tax after the Centre cut down its own excise duties. The Prime Minister said 42 per cent of the Centre’s revenue goes to state governments. “I urge all the states to work as a team in this time of global crisis (high oil prices due to the war in Ukraine) following the spirit of cooperative federalism.”

He said states like Kar­n­­­ataka and Guja­rat took tax reduction measures for the welfare of people, despite revenue loss, while their neighbouring states earned revenue by not slashing tax. “I request that what should have been done in November, do it now. You should pass on the benefit to the citizens by reducing VAT,” Modi told Opposition states.

As Russia’s in­vasion of Uk­raine enters its third month, benchmark Brent and WTI crude remain above the $100-a-barrel mark.

Reactions were swift. According to news agency reports, West Bengal Chief Minister Mamata Banerjee accused Modi of favouring BJP-ruled states by giving them “50 per cent more” money for welfare schemes. “He left the matter of rising prices of petrol, diesel and dom­estic gas to the states, that states will have to slash prices. How will states do that? You increased prices. Did you see your income? You said one-sided things to people,” Banerjee was quoted as saying.

Data compiled from public sources by Business Standard shows that in ab­solute terms, it is indeed a non-BJP state (Maharashtra) that garners the most from the sale of petroleum products. BJP-ruled Uttar Pradesh has the second highest collections (see chart).

Opposition states like Telangana and Kerala do have some of the highest duties on petrol and diesel. However, even BJP-ruled states, many of which cut rates in step with the Centre in November, have some of the highest VAT or sales tax rates.

For example, Assam charges 32.66 per cent VAT on petrol and 23.66 per cent on diesel, while Madhya Pradesh charges 29 per cent plus Rs 2.5 a litre VAT besides 1 per cent cess on petrol; and 19 per cent plus Rs 1.5 per litre VAT plus 1 per cent cess on diesel.

In November 2021, the Centre had cut excise duties on petrol and diesel by Rs 5 and Rs 10 a litre, respectively. Among the BJP states, Uttar Pradesh had cut VAT by Rs 12 per litre overall; Gujarat had in March 2022 cut VAT on petrol and diesel by 4.5 per cent and 7.5 percent, respectively; and Karnataka had, last November, cut petrol and diesel VAT by around 9 per cent.

Opposition state Tamil Nadu had cut petrol prices by Rs 3 per litre last August.