Mamatanomics: Why Bengal can’t reduce tax on fuel

PM Narendra Modi’s request to states for reducing value added tax (VAT) on petrol and diesel, as he invoked cooperative federalism, was met with strong opposition by chief ministers of non-BJP ruled states. West Bengal Chief Minister Mamata Banerjee on Thursday demanded a reduction in domestic gas price by Rs 300. On Wednesday, she had put forward several points on why states, specifically Bengal, deserve their share of revenue.

Explained: How much tax do you pay on Rs 100 of petrol?

“You have shared one-sided talk with people of the nation. It’s not correct and is misleading,” Mamata stated in Kolkata on Wednesday, after attending the PM’s meeting along other chief ministers. She also explained the financial rift between the states and the Centre.

Centre offers more money to BJP-ruled states

Mamata said that the PM appreciated BJP-ruled states. In many schemes, those states get more funds in schemes, 50 per cent higher than what the state receives. So if those states offer Rs 4,000-5,000 crore to the Centre, it’s not something big, as the Centre offers Rs 40,000 crore to such states.

State losing revenue on fuel subsidy

For the last three years, the West Bengal government has been offering a subsidy of Rs 1 per litre on petrol and diesel. This has led to loss of revenue worth Rs 1,500 crore for the state.

Centre owes Bengal Rs 97,000 crore

The Centre owes the state around Rs 97,000 crore. Mamata said that if the Centre clears half of the dues, the very next day she can offer the Centre Rs 3,000 crore. In absence of funds, how will the state government function, she questioned.

Read | 'You hiked fuel tax, you reduce them', Tamil Nadu tells Centre

Centre collects more tax than states

Mamata said that the Centre’s taxation rate is higher compared to the state’s rate. It is taxing 25 per cent more compared to the West Bengal government on petrol. The state wants a 50-50 share of tax revenue, but the major share the Centre takes away, she said.

Centre’s strong tax collection

The Chief Minister stated that between 2014 and September 2021, total revenue collection in form of taxes on petrol and diesel by the Centre stands at 17,31,242 crores. The BJP formed the government at the Centre in 2014.

State’s financial responsibilities

Like the states, the Centre too has debts. West Bengal offers pension to its former employees and runs social security programmes. The Centre also collects cess where the state has no share. Bengal also offers free health, education and ration services to residents.

Mamata alleged discrimination and negligence by the BJP-government at the Centre against Opposition-ruled states. She alleged that the Centre has weakened federal structure and ‘bulldozed’ the democracy. She extended her moral support to the Opposition-ruled states.

Expert’s take

“Excise duty and value added tax (VAT) are two tax components on petrol and diesel, imposed by the Centre and the state respectively. The Centre announced a reduction of excise duty in November. Excise duty is a per-unit tax, the VAT is a percentage on the whole (sum of fuel price charged to dealers, dealer’s commission and excise duty). PM Modi wants states to reduce VAT. With reduced excise duty, VAT collection also reduces, and states also collect lesser tax. I don’t agree with the prime minister that states are not sacrificing,” Abhirup Sarkar, an economist said, adding “I think the dues being referred to include the compensation amount promised to states on account of implementation of goods and services tax.”

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