Entire petro tax cuts’ burden being borne by Centre, says Nirmala Sitharaman

Union FM said the entire duty reduction in petro products has been done out of the Road and Infrastructure cess (RIC) component.

Union Finance Minister Nirmala Sitharaman, on Sunday, said that the entire duty reduction in petrol and diesel announced on Saturday has been done out of the Road & Infrastructure Cess (RIC) component of the taxes levied on petroleum products so the burden of the tax cuts will be borne solely by the Centre.

Allaying concerns that the duty cuts will lower the devolution of taxes to States, Ms. Sitharaman said that the basic excise duty on petro products, which is sharable with States 'has not been touched'.

"Good to see the interest generated by @PMOIndia @narendramodi‘s decision yesterday to bring an Excise Duty cut on petrol and diesel," she said in a tweet, before sharing 'some useful facts' which could benefit the 'criticism and appraisal' of the tax cuts.

The total taxes levied on petrol and diesel include a Basic Excise Duty (BED), a Special Additional Excise duty (SAED), the Road & Infrastructure Cess (RIC) and the Agriculture & Infrastructure Development Cess (AIDC), of which only the BED is sharable with States, the Minister pointed out.

The Union Minister's remarks come on the back of some States criticising her exhortation that they should follow up these duty cuts by slashing State-level levies on fuel products. Tamil Nadu Finance Minister Palanivel Thiaga Rajan had reacted by stating that the Union Government didn't inform or ask States' views while increasing central taxes on Petrol by about ₹23 a litre (+250%) and by around ₹29 a litre (+900%) on diesel since 2014. "Now, after rolling back ~50% of their increases, they're exhorting States to cut," he said in a tweet.

Ms. Sitharaman said that the duty cuts announced in November 2021, of ₹5 per litre of petrol and ₹10 per litre of diesel, were also made entirely in the Road and Infrastructure Cess component of petroleum taxes.

The total revenue implication to Centre, on these two duty cuts is ₹2,20,000 crore a year, the Finance Minister noted, before emphasising that spending on development and subsidies has accelerated under Prime Minister Narendra Modi’s government.