DC Edit | PM’s VAT call may drive a wedge between states

Several states have pointed out that the discriminatory policies of the Union government are putting their finances in dire straits

All chief ministers in the country would be lending their ears when the Prime Minister asks them to “work as a team in line with the ethos of cooperative federalism during the current global challenges”.

But when Prime Minister Narendra Modi chooses such an occasion of global challenge to drive a wedge among states using the taxation on fuels as a tool, he is in fact undermining the very agenda of cooperative federalism that he himself has been pushing.

Mr Modi’s statement that some states, which are run by parties other than NDA and its allies, do not pass on the benefit of the Union government cutting fuel taxes is less than fair on more than one count. He appears to suggest that the Union government alone is keen to reduce the burden on the people by slashing various taxes and levies on fuel. That’s not true. The NDA government that came to power in 2014 was a beneficiary of the steep fall in crude prices that happened a few months into its tenure. But it never chose to pass the benefit over to the people; instead, it kept adding various taxes, basically additional excise duty and cess which the Centre need not share with the states.

Move over to 2020, and there was a demand for a cut in fuel taxes after the pandemic started in March but Mr Modi waited for almost two years to reduce a minor portion in the high rates his government had been systematically imposing since 2014.

It may be remembered that states impose a VAT on fuel prices, and every cut in central excise duty will result in a proportional reduction in the state revenues, too. If the states were to borrow the logic of the Union government, then they could have raised the VAT rates and prevented the revenue fall. But none did it; instead, they chose to forego their revenues. Some states, including Tamil Nadu, West Bengal and Kerala, announced an additional cut in their VAT rates instead.

Several states have pointed out that the discriminatory policies of the Union government are putting their finances in dire straits. While West Bengal says it has a sum of Rs 97,000 crores due from the Centre, the amount is more than Rs 20,000 crores in Tamil Nadu and Rs 17,000 crores in Maharashtra. Every state Mr Modi picked on will have a similar story to tell.

The Goods and Services Taxes regime was initiated on the premise that the Union government will share the tax revenue with the states. But the opposite is happening with the former steadily increasing the non-shareable segments of taxes and slashing the shareable ones. The additional excise duties and the income tax are the cases in point. Worse, the NDA government has a history of delaying the payments to the states. In fact, some states were forced to openly state that they will be moving the Supreme Court to get the Centre to release GST compensation which is their constitutional right.

The Prime Minister is right in pointing out that we are yet to get over pandemic times. He may well remember that it is a time for a politics of unity, not division.

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