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States see red as FinMin passes buck on fuel rates

A day after Union Finance Minister Nirmala Sitharaman ruled out any imminent cut in fuel taxes levied by the Centre and said States should cut their own taxes on fuel to give relief to consumers, several State governments were not amused and termed it an insult when their finances were already weak.

Ms Sitharaman had asserted that States gain more than the Centre due to higher oil prices because they charge ad valorem duties while the Centre charges a fixed levy, which will be difficult to slash as it had to subsidise fuel price reductions undertaken by the UPA in 2012-13.

“The Union Finance Minister has made it amply clear that the Centre has no intention to reduce the fuel prices. The stand that the States have the option to reduce it is tantamount to insulting the States which are already in a financially weak condition,” said Kerala Finance Minister K.N. Balagopal.

Arguing that petrol and diesel had become pricier because of the additional and special excise duties and cess imposed by the Narendra Modi government when global oil prices were declining, Rajasthan Transport Minister Pratap Singh Khachariyawas said Ms. Sitharaman has rubbed salt in the wound by telling a lie about the States making more money.

“It would be wrong to pass the buck to the State governments, when the Modi government’s real intention is to benefit the corporate sector,” he said, seeking an apology from the Union Finance Minister to the nation for telling ‘a brazen lie’ and urgent cuts in fuel prices and restoration of the subsidy on LPG cylinders.

Tamil Nadu Finance Minister Palanivel Thiaga Rajan took to Twitter to respond to Ms. Sitharaman’s jibes about the State announcing a three rupee cut in petrol taxes after hiking the duties by seven rupees earlier. The FM had also targeted the DMK for being party to the UPA ‘trickery’ of issuing oil bonds to subsidise fuel prices.

The decision to reduce tax on petrol by ₹3 per litre was “integrity and not trickery,” the TN minister countered. “Between 2016 and 2020, the BJP’s ally, the then AIADMK government had raised tax on petrol by ₹7 per litre in two stages. The DMK had argued against it when in Opposition.

“Now DMK formed Govt. & reduced petrol tax by ₹3/litre. With respect, this is ‘Integrity’, NOT ‘Trickery’,” Mr. Thiaga Rajan said in a tweet. The DMK had made a poll promise that it would reduce petrol prices if voted to power.

The Tamil Nadu government’s move has kindled expectations that other States may follow suit, but the fiscal position is too strained for comfort for most.

Karnataka Chief Minister Basavaraj Bommai, who also holds the Finance portfolio, said there is no proposal before the government to reduce levies on petrol like neighbouring Tamil Nadu had done.

Karnataka government sources said reduction in fuel prices was a difficult task at this point as COVID-19 had delivered a twin blow. “Spending towards health and related facilities has gone up due to the pandemic, while revenue has dwindled,” a source said, adding that finances were tighter after the new CM took over and announced some new schemes.

Urging the Centre to take a helpful stand towards States in the current economic scenario, Mr. Balagopal said any attempt to include petroleum products under the Goods and Services Tax (GST) regime would further jeopardise States’ interests. “Already, the Centre is reluctant to share revenues, and giving them more control would harm the States,” he said.

In Telangana, officials remained non-committal about replicating TN’s rate cuts. “The Centre collects all the cesses which are not shared with the States. No freedom exists for the States,” a senior finance department official told The Hindu.

(With inputs from Tiki Rajwi in Thiruvananthapuram, Deepa H Ramakrishnan in Chennai, Mohammed Iqbal in Jaipur, B.S. Satish Kumar in Bengaluru, M Rajeev in Hyderabad)

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