Reduction in petrol sales tax doubtful but social security cess of ₹2 per litre will go

Former Kerala Chief Minister Pinarayi Vijayan and former finance minister K N Balagopal on Tuesday hurled back at Chief Minister V D Satheesan, who is also the finance minister, the question he had repeatedly thrown at them in the last decade. "Will the state government forego the additional revenue it will collect as sales tax as a result of the increase in fuel prices," both Pinarayi and Balagopal asked.

The occasion was the adjournment motion moved in the Assembly by Balagopal seeking a suspension of normal business to discuss the fallout of the rise in fuel and LPG prices stoked by the war in the Middle East. The former finance minister said that the post-war increases in fuel prices would provide Kerala an additional sales tax gain of ₹150-180 crore a month.

The Chief Minister responded by reminding the Opposition of what former LDF finance minister T M Thomas Isaac said when he was faced with the same poser. "The LDF government will not commit the blunder of cutting taxes, is what Isaac told us," the Chief Minister said. "Are you asking me to commit the same blunder," he asked.

Moreover, the CM said the state was in dire need of money to fight inflation. "You have left office after piling up ₹2893 crore as arrears to the Civil Supplies Corporation. How are we supposed to contain inflation without cleaning the debts of the Corporation," the CM said, suggesting that the extra revenue from fuel sales would be used for firefighting measures.

This, however, did not seem as if the UDF government has ruled out any reduction in the sales tax it imposes on a litre of fuel and cap its revenue from petrol and diesel sales at pre-hike levels. In his introductory remarks the Chief Minister, while acknowledging that the economic distress caused by the war was grave, said that the government was monitoring the situation and a mitigation strategy was being drawn up. "We will have to wait for some time," Satheesan said.

In addition to central excise and customs tariffs, state governments also impose their share of levies on the sale of petrol and diesel. In Kerala, the sales tax on petrol is 30.08%. On top of this are an additional sales tax of ₹1 per litre, one per cent cess and a social security cess of ₹2 per litre. Sales tax on diesel is 22.76% and then the additional levies imposed on petrol are also applicable.

Balagopal argued that the previous LDF government had brought down the sales tax on petrol and diesel to the present levels from the levels prevailing under the Oommen Chandy dispensation (31.86% and 24.52%).

Satheesan countered this. He said that between 2016 and 2026 January, the former LDF government had secured additional sales tax revenue of ₹3,100 crore as a result of multiple increases in fuel prices. "They had not sacrificed a single paise," the CM said.

Though he did not make a declaration, there was a clear hint in the CM's words that the social security cess of ₹2 per litre will be withdrawn.

The CM reminded the former finance minister of what he, as opposition leader, said when the cess was introduced in 2022. "I told you it was a dangerous move," Satheesan said. "I warned you that interstate trucks would fill up at the border and deprive Kerala of sales tax revenue," he said. The year after the cess was introduced, Satheesan said that diesel consumption had fallen by 1.5 lakh litres.

The logical next step is to undo the folly. Satheesan stopped short. The CM, perhaps, is waiting for his Budget speech on June 19 to withdraw the cess.