Can States cut more tax on oil than Centre?

States have the capacity and must reduce the duty on petrol, while the Centre should create fiscal space to deal with the impact of spurt in oil prices, NITI Aayog vice chairman Rajiv Kumar feels. The rising crude prices in the international market prompted state-owned oil companies to raise domestic prices for 11th day in a row. "There is merit in reducing the duties but both by the states and the Centre.

More so for the states as they tax the oil on ad valorem basis ... So states can take that cut much more and better than the Union government," Kumar said. It is important for them (states) to agree 10-15 per cent duty cut and take home the same amount of tax revenue as budgeted. "Not doing that means being exceptionally greedy at the cost of not just the people but also the economy.”

The states on an average tax petrol at 27 per cent. The Centre has fiscal space and it can create more fiscal space on the non-tax revenue side. The Centre could consider reducing the additional excise duty on petrol. It should not temper with infrastructure cess which is being directly used for developmental activities. Not only petrol but electricity should also be brought under the Goods and Services Tax (GST).

The government raised excise duty nine times between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre. The Centre levies Rs 19.48 as excise duty on a litre of petrol.