Government may bring fuel prices under Goods and Service Tax (GST) before state elections in Rajasthan, Madhya Pradesh and Chhattisgarh, said T M Thomas Isaac, Kerala Finance Minister.
Speaking exclusively to CNBC-TV18's Shereen Bhan, Isaac said Narendra Modi government has increased the excise duty on petrol by 200% and on diesel by 300% earlier, but as crude oil prices were declining at that time, nobody protested against the increase of the tax rates.
Watch: Fuel prices in Kerala slashed from June 1
The Kerala Finance Minister said if BJP government is serious about controlling the prices of petrol and diesel, let them first roll back the increase in the tax rates, then we will talk.
Edited Excerpts: The state of Kerala, the first of the block in cutting VAT rate to bring down the prices of both petrol and diesel to offer relief to consumers – you are pretty much now throwing an open challenge to the centre?
Exactly. We never raised our tax rates, it was the Narendra Modi government that increased the excise duty on petrol by more than 200% and on diesel by more than 300%. At that time, crude oil prices were declining and therefore, nobody protested against the increase of the tax rates. However, now the crude oil prices are rising, everybody expects the central government to do the reverse – calibrate their tax rates down so that the prices don’t increase. Instead, they are allowing the companies to raise the prices.
We have been telling them do this, don’t do this etc. but there is no point in telling this government. Therefore, we have decided to precipitate things. Why? Unilaterally, we saying no, we don’t want the additional tax revenue from price increase. Therefore, we have calculated the price increase of petrol and diesel from April 1 to this date, and then adjusted our tax rates downwards; 1.69% for petrol and 1.75% for diesel so that the prices come down by Rs 1.
VAT is ad valorem, so every time crude prices increase, state governments like yours stand to benefit. One discussion that is currently underway is that, should states impose excise that the centre charges? Your comments?
No, it is not under discussion anywhere because nobody can discuss it, only we can discuss it.
Would you be open to the idea of moving to specific VAT?
No, we are not going to negotiate these things. First point, we negotiated and acted upon. Here is a central government, who without any remorse has increased the tax rates more than double and then preaching things or behaviour to others. No, if you are serious about controlling the price of petrol and diesel, first roll back the increase in the tax rate that you effected, then we will sit down and discuss.
So your message to the centre is don’t preach but act. Do you have room to cut the VAT even further if we continue to see global crude prices move higher even though they have been declining over the last few days but to provide more relief, do you have the elbow room to bring VAT rate down even further? Also, how much has accrued to you as a state government, when we have seen the ad valorem benefit? What has been the revenue implication of that and what is the revenue implication of this move?
Suppose, we had decided to collect the tax on the price increase of petrol and diesel, the margin will increase the price that taxed upon at percent rate. We would have gained something like Rs 500 crore, so we are giving up that amount. Assuming that the prices don’t rise any more, we are giving up Rs 500 crore of potential revenue.
But you have made significantly more on account of the fact that we have seen crude prices move up so significantly?
Who asked them to raise prices in the first place? We are telling them every day, that you reduce the taxes that you raised and we promise we will not tweak our rates high.
I am not arguing about that but merely pointing out that you have also benefited from the fact that duty structure is ad valorem and all states like yours have also benefited on account of higher global prices, so that has had positive revenue implications for your state?
I have already stated, we don’t want this. Let them reduce the rate and prices will come down and we take a follow up from it, we won’t raise the rate to keep up our revenue. Two, since they are not listening to this, we have taken this initiative to give up the additional revenue, we have acquired because of ad valorem rate structure. Now, if you ask me, are you going to do it in future? I hope that our action will also incentivize some sort of movement, so that the central government will rollback tax hike and we won't have to reduce our rate further.
A lot of central government leaders are now talking about the possibility of bringing petroleum under the ambit of the Goods and Service Tax (GST) and this might be an issue for discussion at the next meeting of the GST Council – what will your position as a state be on bringing petroleum under GST?
When simple straightforward course action is before you - just roll back the tax increase you made, why go into discussion of GST and decision to be made in GST Council and consensus of the 30 state governments and so on. These are all ways of postponing the inevitable action.
No. I don’t think central government is willing to give up this money because that will affect their fiscal deficit, in a condition of rupee sliding down, you don’t want to give any pressure that the fiscal deficit may go up. Therefore, central government will not do it till the three state elections come up, then they will perhaps spring a surprise on the nation. If you are asking me straightforward, whether I would be positive for GST, I am saying, take it to the GST but compensate us. That is the law of GST, if your revenues do not go up by 15%, you have to compensate the state.
So you don’t have much hope on moving forward on bringing petroleum under the GST?