Why Kerala's two-rupee cess is heaviest fuel-tax burden imposed by an Indian state

Petrol Pump
File photo: Manorama

There is pressure on the LDF government, both from within and outside, to at least partially roll back the two-rupee cess on petrol. The initial guarded reactions of CPM state secretary M V Govindan and LDF convener E P Jayarajan suggest that the government might reconsider.

Nonetheless, Jayarajan's quick disclaimer of his comment that the resultant fuel price differential among states could harm Kerala's interests and finance minister K N Balagopal's untiring justifications, suggest otherwise.

However, here is one factor the LDF government would do well to ponder. If the two-rupee cess becomes operational, Kerala will have the highest petrol price in South India. As for diesel prices, it will be the highest in the country.

As it stands, Andhra Pradesh and Telengana have higher diesel prices than Kerala (Rs 98.27 and Rs 97.82 a litre respectively.) With the two-rupee cess, Kerala will effectively steal a march over these two states. It would be 98.52 a litre, the highest in the country.

The cess-spiked petrol price, 109.71, will be the highest in South India.

File Photo: AFP

High, higher, highest
Already, Kerala's petrol and diesel prices are higher than all the four big metros: Delhi, Mumbai, Chennai and Kolkata. The petrol and diesel prices in Kerala (Thiruvananthapuram) on February 5 are Rs 107.71 and Rs 96.52 per litre.

Here are the petrol/diesel prices for the big metros: Delhi - Rs 96.72/89.62; Kolkota - Rs 106.03/92.76; Mumbai - 106.31/94.27; Chennai - Rs 102.63/92.76.

What's more, both petrol and diesel prices in Kerala are higher than in any of the major neighbouring towns and cities in Karnataka and Tamil Nadu from where Kerala residents can easily source fuel.

Here are the petrol/diesel prices in other-state neighbouring towns: Coimbatore - Rs 103.11/94.73; Salem - Rs 103.39/95.01; Trichy - Rs 103.08/94.72; Madurai - Rs 103.21/94.84; Erode - Rs 103.12/94.74; Kanyakumari - Rs 103.57/95.24; Mysore - Rs 101.46/87.45; Mangalore - Rs 101.13/87.13; Bangalore - Rs 101.94/87.89.

Finance minister KN Balagopal

Jayarajan's genuine worry
If the two-rupee cess comes into force, fuel prices in Kerala would show a difference ranging from Rs 6 to Rs 10 a litre for both petrol and diesel compared to neighbouring other-state towns.

It is this price differential that had initially left E P Jayarajan worried. The possibility of those living in border areas crossing over into Tamil Nadu or Karnataka for their fuel needs cannot be ruled out.

This likely shift of Kerala's demand to other states could badly dampen Balagopal's expectations from this two-rupee cess.

People-friendly Karnataka, TN
It is the high sales tax and other levies that Kerala already imposes that has kept fuel prices high in Kerala.

For petrol, Kerala not only has a 30.08 per cent sales tax but also an additional sales tax of one rupee a litre and a one per cent cess. For diesel, there is a sales tax of 22.76 per cent and on top of that the additional sales tax of one rupee a litre and a one per cent.

The two-rupee cess on both petrol and diesel is going to be heaped on top of this.

In the case of Karnataka, it has imposed a relatively lower sales tax of Rs 25.92 per cent for petrol and 14.34 per cent for diesel. There are no additional levies.

Tamil Nadu's fuel tax structure is also people-friendly. It has kept only a relatively low proportion of the tax in percentage terms; 13 per cent for petrol and 11 per cent for diesel. The rest it collects as a fixed amount; Rs 11.52 a litre for petrol and Rs 9.62 a litre for diesel.

Why Kerala has high fuel prices
The advantage of such a structure is that the hikes effected by the centre will impact the public less.

The state's sales tax is collected over the fuel price that is the sum of the basic cost of fuel and the slew of central customs and excise duties. So when the centre ups excise duties, only the portion of a state's sales tax collected in percentage terms (13 per cent for petrol in Tamil Nadu's case) will show an increase. The fixed component (Rs 11.52) will remain the same.

In Kerala's case, virtually all of the sales tax is collected in percentage terms (ad valorem). So whenever the centre hikes duties, almost the whole of the state's sales tax component (30.08 per cent for petrol) will automatically increase, leading to a relatively larger increase in fuel prices whenever the centre moves the prices up.

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