The Centre’s levy of fuel surcharges is way beyond basic taxes and an abject misuse of provisions of the Constitution
Context: The Central Government reduced excise duty on petrol and diesel on the eve of Deepavali. While the reduction for petrol was ₹5, duty on diesel came down by ₹10.
- The Centre has been levying around ₹31 and ₹33 as additional cess on petrol and diesel, respectively, till the beginning of November.
The constitutional mandate on taxation:
- The Constitution permits the Centre to levy cess and surcharges beyond the basic taxes and duties in extraordinary situations.
- Article 271 says that Parliament may at any time increase any of the duties/taxes by a surcharge for the purpose of the Union. Whole proceeds of any surcharge shall form a part of Consolidated fund of India directly. This means that this does not go to the divisible pool of the centre.
- Finance commission is set up once every five year under Article 280 to device a scheme of distribution of a share of taxes to states to address the imbalances in the state finances owing to lesser taxation power. At present, revenue collected from all Central taxes, barring from Cesses, Surcharges & Taxes from Union Territories & an amount equivalent to the cost of collection of central taxes forms a part of the divisible pool of taxes.
- Exception in GST: Parliament can’t levy surcharge on GST after 122nd amendment. Therefore the whole burden of the extra surcharges and cess have been put on the articles outside GST which is fuels, alcohol and electricity.
- Punchhi commission: Cesses & surcharges should be brought down in respect to their share in Gross tax revenue.
The Gross Misuse of Surcharge:
- Surcharge is defined as a small amount of tax levied over and above the existing tax.
- Problem: it is currently seven or eight times higher than the basic tax. Currently, the basic excise duty is ₹1.40 and the rest of the tax is made up of special additional excise duty and cess which would not go to divisible pool and to the States.
- Revenue data: The Union government has collected around ₹3.72-lakh crore in 2020-21 as revenue from petroleum products as per the data published by the Petroleum Planning and Analysis Cell (PPAC). Of this, only around ₹18,000 crore is collected as Basic Excise Duty. Around ₹2.3-lakh crore is collected as cess and the rest ₹1.2-lakh crore is collected as special additional excise duty.
Three important conclusions of this analysis:
- The basic tax component of the entire ₹3.72-lakh crore is merely ₹18,000 crore, which is as low as 4.8% of the total revenue from petroleum products;
- The divisible pool is only 41% of this ₹18,000 crore;
- Most importantly, cess and additional excise duty on petroleum products constitute around 95% of the total revenue from petroleum, which are not to be shared with the States at all.
Concerns due to this tax structure:
- Undermining federalism prevailing in the country. By unilaterally taking away the bulk of the tax revenues on petrol and diesel, the Centre has done injustice to the States. This is obtuse use of fiscal federalism. All States must oppose this in a united manner.
- No Input credit to the producers: leading to tax on tax. After the implementation of Goods and Services Tax (GST), States have the right to decide the taxes on just three goods — petrol, diesel and liquor.
- States finances are under more pressure than the centre: The novel coronavirus pandemic has worsened it. States have to earmark funds to assist the people.
- Relevance of revenue neutral rate (RNR): The promise of GST was that RNR will be implemented, which means States would get revenues similar to what they were getting before the implementation of GST. The average taxes on goods was 16% during the initial GST period. The average rate of taxes in goods at present is 11.3%. But has any consumer benefited from it? Instead, inflation has also been rising. All essential items are more expensive than the pre-GST price. Neither Governments nor the people have benefited from this.
Conclusion: The government must lower the taxation on fuel as a first step and eventually try to bring the fuel under GST to lower the tax and allow the state finances to get improved.
2. India must be clear on how it wants to shape Afghanistan’s destiny under the Taliban
Context: Third Delhi Regional Security Dialogue on Afghanistan, chaired by NSA Ajit Doval recently was composed of National Security Advisors’ (NSA) of regional countries.
About the Meet:
- New Delhi has sent out three strong messages
- It wishes to remain an important and engaged player in the future of Afghanistan
- With the exit of U.S.NATO troops, the ideal solution to the situation is through consensus in Afghanistan’s extended neighbourhood including Russia.
- Afghan humanitarian crisis should be the region’s immediate priority and political differences can be set aside to help.
- A Progressive approach taken by New Delhi: We invite the China and Pakistan, despite the LAC standoff and deep differences . By declining the invitation, Beijing and Islamabad have made it clear that they do not intend to assist India in its Afghan engagement. Further demonstrated by the Khan government’s churlishness in refusing India road access to send wheat and medicines to Kabul.
- The Delhi Declaration issued by the eight participating nations, including Iran and Russia, is a milestone in keeping India inside the discussion on Afghanistan. This is a creditable feat.
Attitude of the other partners:
- Turkmenistan sent a Ministerial delegation to discuss connectivity with the Taliban.
- Uzbekistan accorded the visiting Taliban Deputy PM full protocol and discussed trade, transit and the construction of a railway line.
- Russia and Iran still maintain their embassies in Kabul, and a “Troikaplus”
- U.S. – China – Russia-Pakistan engagement is taking place with the Taliban Foreign Minister, in Islamabad this week. With the “normalisation” of ties with the Taliban regime growing.
Way Forward:
- India must clear its stand: India has publicly held talks with Taliban officials twice and expressed solidarity with Afghans but on the other has refused practically all visa seekers, made no monetary contribution to the humanitarian crisis there, and has made no bid to continue with plans for trade and connectivity with Afghanistan.
- India’s desire to lead the discussion on Afghanistan’s destiny, as demonstrated by the NSA dialogue, is a worthy goal for a regional leader, but can only be fulfilled once the Government defines more clearly what it wants its Afghan role to be, despite all its differences with the regime now in power.
- It also expands on the need for an inclusive government in Kabul that will replace the Interim Taliban regime, and promotes a national reconciliation process.
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SOURCE: https://www.thehindu.com/
