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Wednesday, January 26, 2022

Fuel taxes: Centre rakes in Rs 3.72 lakh crore, low basic excise duty limits states’ share

In 2014-15, the states' share in the net proceeds of shareable Central taxes and duties was at 32 per cent, which now stands at 41 per cent. The Finance Ministry data also showed that the share of cesses and surcharges in gross tax collections went up more than four times over the last decade between 2011-12 and 2020-21.

Written by Sunny Verma | New Delhi |
December 21, 2021 4:43:55 am
In 2020-21, the Centre collected Rs 4,09,481.16 crore as cesses and surcharges, up from Rs Rs 92,996.51 crore collected in 2011-12. These collections are not shared with states.

Taxes collected by the Central government on petrol went up nearly three times from Rs 9.48 per litre in 2014 to Rs 27.90 per litre in 2021; however, the states’ share in these tax collections rose from Rs 0.38 per litre to Rs 0.57 per litre during the same time period. This is based on data presented by Minister of State for Finance Pankaj Chaudhary in reply to a question in Lok Sabha on Monday.

In 2014-15, the states’ share in the net proceeds of shareable Central taxes and duties was at 32 per cent, which now stands at 41 per cent. The Finance Ministry data also showed that the share of cesses and surcharges in gross tax collections went up more than four times over the last decade between 2011-12 and 2020-21.

In 2020-21, the Centre collected Rs 4,09,481.16 crore as cesses and surcharges, up from Rs Rs 92,996.51 crore collected in 2011-12. These collections are not shared with states. “Cesses and surcharges are not included in the divisible pool as per Constitutional scheme for devolution of taxes,” Chaudhary said. As per recommendation of the 15th Finance Commission, the Centre shares 41 per cent of the tax receipts with states for award period 2021–26.

Rising collections through cesses and surcharges mean that the tax devolution to states falls proportionately. Share of cesses and surcharge in gross tax revenue has jumped to 19.9 per cent in FY21, from 10.4 per cent in FY12.

Several state finance ministers have argued recently that all or some portion of the cess and surcharges collected by the Central government should form part of the divisible pool, which is shared with the states. The issue of cess and surcharge is currently not within the mandate of the Finance Commission, as these collections are not part of the divisible pool.

The government will have to amend Article 269 and Article 270 of the Constitution to make these a part of the divisible pool. A cess is imposed on the base tax liability of a corporation or an individual taxpayer, for a specific purpose. Surcharge is a tax on tax that the Union government can use for whichever purpose it deems fit.

States’ share in central petroleum taxes remained low as the basic excise duty was not raised as much as other duties were hiked. In FY21, the Centre collected Rs 3.72 lakh crore of taxes (excise duty and cess) from petroleum products, from Rs 2.23 lakh crore in FY20. Even as total excise duties went up multifold on petroleum products, the basic excise duty on petrol was raised to Rs 1.4 per litre in 2021 from Rs 1.2 per litre in 2014. Petroleum taxes with states are shared only out of basic excise duty. The Centre also levies additional excise duty and cesses on petroleum products.

“Devolution to state governments is made out of the basic excise duty component on the basis of the formula prescribed by the Finance Commission from time to time. Present total Excise duty on petrol is Rs. 27.90 per litre. This includes Basic Excise Duty, which is Rs. 1.4 per litre,” Chaudhary said.

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