November 21, 2021

How Modi Government Loots through Central Taxes on Petrol and Diesel


FACING massive anger at the relentless raising of petrol/diesel and cooking gas prices, the Modi government has resorted to trickery. It has shifted the onus of bringing down prices on to state governments. BJP state governments have been forced to comply with this tactic, and political pressure is being manufactured and applied on non-BJP state governments to do the same. The purpose is to deflect attention from the monumental burden that has been put on the people over the past seven years of BJP rule at the centre and present it as the doing of state governments. It is also being propagated by BJP that taxes are shared with states.

All of this is far from the truth as the following data, taken from the Petroleum Planning and Analysis Cell (PPAC) of the ministry of petroleum and natural gas, shows.

1. Between 2014-15 (when the BJP led government was formed at the centre) and 2020-21, total taxes collected by the central government from petroleum products amounted to a mind boggling Rs 18.72 lakh crore. In the same period, taxes collected by state governments amounted to Rs 13.82 lakh crore.

So, 58 per cent of taxes on petroleum products were taken by the central government and 42 per cent by all state and UT governments put together.

2. In addition, the central government also received corporate/income taxes, dividends from government owned oil marketing companies, dividend distribution tax and profits from petroleum exploration through this period, amounting to Rs 3.63 lakh crore.

Adding this to the central government’s tax receipts the total amount of receipts from petroleum and products sector work out to a whopping Rs 22.35 lakh crore.

Thus actually, the share of centre’s receipts from this sector is 62 per cent, while the states’ share is 38 per cent.

3. The hike in central government’s taxes/duties on petroleum products over the past seven years of Modi’s rule has been far more than the state governments’ tax increases.

The central government collections from customs duty increased by 228 per cent and excise duty by 276 per cent between 2014-15 and 2020-21.

In the same period, state governments’ tax collections increased by 48 per cent through sales tax while in various others it declined, with octroi, duties incl. electricity duty declining by 82 per cent and entry tax by 94 per cent.

4. The central government’s tax collections include various kinds of cess. These are taxes that do not get shared with states as happens with all other taxes, as per constitutional provisions. Apart from the cess on domestic crude petroleum which yielded about Rs 1 lakh crore in the past seven years, there are two other cesses that are levied on excise duties: agricultural infrastructure and development cess, and the road and infrastructure cess. There is also a “special additional excise duty” which is again not shared with states.

Over the years, the Modi government has stealthily reduced the share of excise and simultaneously shifted the same to these two cesses. For example: in the union budget 2021-22, the agriculture infrastructure and development cess on petrol and diesel was increased to Rs 2.5 per litre and Rs 4 per litre, respectively while the basic excise duty and surcharge were reduced by equal amounts, so that the overall rate remains the same. What this sleight of hand did was to shift a revenue of Rs 1.5 per litre of petrol and Rs 3 per litre of diesel from the states’ divisible pool of taxes to the cess and surcharge revenue, which remains entirely with the centre.

As of February 2021, 96 per cent of excise duty collections from petrol and 94 per cent from diesel are going into the non-shareable part of taxes because they are branded as cesses. What was being shared was just 4 per cent and 6 per cent of the excise duties collected. As PRS has pointed out, just four years ago, in April 2017, 44 per cent of excise collections from petrol and 65 per cent from diesel was devolved to states.