Continuous Reduction of States' Share in Taxes Is Against The Spirit of Fiscal Federalism: CM



Jaipur, November 9. Chief Minister Mr Ashok Gehlot in a letter to Prime Minister Mr Narendra Modi has requested that the Centre should further reduce the additional excise duty and special excise duty of the Central Pool on petrol and diesel so that the general public can get proper benefit of reduction in excise duty and VAT simultaneously.

 Besides this, he also requested the Prime Minister to direct the oil companies to stop continuous increase in prices of petrol-diesel. Daily increase in prices by the oil companies will bring the benefit of relief given by the Centre and State Government to the zero, he added. 

Mr Gehlot said that, it is expected that the Centre additionally reduces excise duty to the tune of Rs. 10 per litre on petrol and Rs. 15 per litre on diesel. With the Centre reducing the excise duty, the VAT received by the State will automatically get reduced proportionately by Rs 3.40 per litre on petrol and Rs 3.90 per litre on diesel. As a result of this, the State exchequer will have to bear an additional revenue loss of Rs 3500 crore per annum, which the State Government was ready to bear in the larger public interest. 

The Chief Minister said that from the year 2016 the Central Government has decreased the states' share by continuously reducing the basic excise duty imposed on petrol-diesel. In the meantime, special and additional excise duty is being continuously increased and the States do not get any share of these duties. He said that the revenue of the center is getting benefitted due to increase in additional excise duty and agriculture infrastructure cess, whereas the basic excise duty which falls in the divisible pool has gradually been reduced resulting in reduction in the State's share of taxes. He said that continuous reduction in the share of taxes received by the States is against the principles of Fiscal Federalism.

Mr Gehlot said that in a democracy, elected governments have to mobilise necessary fiscal resources for the development works and social security schemes of the State. The geographical location, economic scenario and local conditions of the States also affect the process of providing the benefits of development schemes to the general public. To collect revenue for the development schemes, the States have been given the constitutional right to levy necessary taxes. He said that the Centre first increased the additional and special excise duty on petrol-diesel and later on reduced it minimal and tried to create an atmosphere of mutual competition among states for reducing the VAT which is also contrary to the spirit of Cooperative Federalism.

The Chief Minister said that during the lockdown on May 6, 2020 the Central Government increased the excise duty by Rs 10 per litre on petrol and Rs 13 per litre on diesel. On November 4, 2021 after reducing excise duty on petrol by Rs 5 per litre and on diesel by Rs 10 per litre, the center claimed that it has provided big relief to general public. Whereas, the reality is that in the year 2021 itself, around Rs. 27 and Rs. 25 were increased respectively on petrol and diesel prices. In such a situation, the reduction in the excise duty by the Central Government appears to be insufficient, he said. 

Mr Gehlot said that more than 22% of the total revenue of the Rajasthan State comes from the VAT on petrol-diesel. From January 29, 2021, till now the Rajasthan Government has reduced around Rs. 3 per litre on petrol and Rs. 3.80 per litre on diesel. The State is incurring the revenue loss to the tune of Rs 2,800 crore per annum. In the current financial year till October, there has been a decrease of Rs. 20,000 crore in the revenue of the State due to Covid-19 circumstances. GST compensation of Rs 5,963 crore has not been released to the State by the Centre. In such circumstances, because of the efficient financial management our Government did not allow the pace of development to slow down. The State Government is ready to fulfill the promises made in our public manifesto and the state budget in a time-bound manner. 

He requested the Prime Minister for early payment of the outstanding amount of GST compensation and to extend the period of GST compensation to states till the year 2027.