Finance Minister Nirmala Sitharaman said on Sunday that the Center would bear the “full burden” of the last two instances of “excise” reduction in auto fuels – November and Saturday last year. In a series of tweets, he explained that a portion of this tax, such as the basic excise duty (BED), was not deducted on both occasions.
Central taxes on petrol and diesel include BED, special additional excise duty, road and infrastructure cess and agriculture and infrastructure development cess. Of these, only the BED tax is part of the divisible pool, and therefore the money needs to be shared with the states according to the formula of the Commission, under which the share of the states in the pool is 42%.
But it can be noted that since the taxes of the states are mostly valueless and are levied on a basis including central taxes (all volume-based), the reduction of central taxes has a direct effect on the revenue of the states. For example, as a result of Saturday’s excise cut, Kerala will lose Rs 2.41 / liter on petrol and Rs 1.36 / liter on diesel, while Rajasthan will lose Rs 2.48 / liter on petrol and Rs 1.16 / liter on diesel.
Also, when the center increases excise in 2020, only the non-divisible portion of the tax increases.
Although the central tax on diesel was shared with the states at 25% on October 30, 2018 under the relevant formula, on November 5, 2021, the share of the states in the central tax on auto fuel was only 3.4%. The latest excise duty has been reduced to 4.7%.
“Yesterday’s tariff reduction has an impact of Rs 1,00,000 crore a year for the Center. The tariff reduction made on November ’21 has an impact of Rs 1,20,000 crore per annum for the Center The impact of the Centre’s total revenue is দুটি 2,20,000 crore a year on these two tariffs, “Sitharaman tweeted.