Roll back some fuel taxes to feed growth – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-editorial/roll-back-some-fuel-taxes-to-feed-growth/articleshow/86760687.cmsSynopsis

The way forward clearly is to broad-base and modernise taxation in general, and include petro-fuels and power in the goods and services tax regime, with tax setoff available along the value chain, for much-needed tax efficiency. It will not do to tax growth to death.

As oil and other energy prices rise, the government must pare its taxes on energy, or risk eating into the purchasing power that Indian consumers can bring to bear on the produce of industry. Depressed consumer demand is bound to affect recovery and stymie the growth momentum going forward. The point is that there is a definite trade-off between raising voluminous oil taxes amidst a pandemic, and stepping up ad valorem taxes on fuels as general policy. The tax is passed on as higher freight and other costs across the board to the consumer.

The oil tax burden can shore up cost-push inflation, adversely affect relative prices and generally misallocate resources economy-wide. Note that excise collection from petrol and diesel alone is up as much as 88% at ₹3 lakh crore, thanks to last year’s ramp-up in oil taxes. The Centre did raise excise duty by ₹13 per litre of petrol and ₹16 per litre on diesel between March-end and May 2020, when global crude oil tanked due to Covid-19. The hike raised excise duty by 65% for petrol, from nearly ₹20 to almost ₹33, while that for diesel went up by 79%, from nearly ₹16 to over ₹28. Plus, ad valorem retail state taxes only add to the fuel tax burden.

And high and rising indirect taxes are regressive, affecting everyone, never mind the capacity to pay. The Centre clearly needs to have optimal tax design for the main oil products, so as not to overburden consumers with an inefficient cascading tax-on-tax policy for oil products. The way forward clearly is to broad-base and modernise taxation in general, and include petro-fuels and power in the goods and services tax regime, with tax setoff available along the value chain, for much-needed tax efficiency. It will not do to tax growth to death.

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