Political slugfest over oil prices

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“Progress is impossible without change, and those who cannot change their minds cannot change anything.”

– George Bernard Shaw


The political slugfest over high petroleum taxes has been going on and it is unlikely to end. Union Minister Arun Jaitley’s warning that petrol and diesel prices in the country have to stay high as long as Indians don’t pay their taxes smacks of arrogance. “The tragedy of the honest taxpayer is that he not only pays his own share of taxes but also has to compensate for the evader,” Jaitley had said while reacting to his predecessor P Chidambaram’s  suggestion to cut upto Rs. 25 per litre on petrol taxes. With global crude prices zooming, Chidambaram had criticised the National Democratic Alliance government for not reducing taxes on petroleum products to reduce the burden on consumers’ pockets. Jaitley’s statement effectively rules out tax cuts on petrol prices by the government, though it remains to be seen if it cuts excise duty on petroleum products marginally, if global crude prices start rising again. Through his remark that “if people pay their taxes honestly, the high dependence on oil products for taxation eventually comes down” the former finance minister, it seems, is calling upon people to ensure greater tax compliance. The essence of his statement is that since people don’t pay tax, the government, which has run into tricky political waters over rocketing fuel prices , will have to keep raising tax rates on items such as petrol and diesel, where there is no scope for evasion.

There is no denying that the NDA government under Narendra Modi is feasting on high oil revenues and robbing middle class petrol consumers. Jaitley tries to convey that revenue from the petroleum sector is indeed a lifeline for the government. Now, the moot question is: whose responsibility is to ensure tax compliance? And the answer is –it is his and his government’s and it has all the armoury – necessary law and machinery to enforce law — required for it. Moreover, the NDA government has the majority in Parliament to create a new law if the existing ones are insufficient. In that case Jaitley’s argument sounds illogical as he tries to deviate from the core issue by levelling  tax evasion slur on the general public.

The recent fall in global crude oil rates might have come as a breather for Narendra Modi government, but not for general consumers – strikingly dynamic fuel pricing system does not come into effect when global crude rates go down. It bares open Modi government’s complicated oil policy.  While one can’t deny the impact that external factors have had on fuel prices in the country, the taxes levied by the Centre and state governments have also contributed significantly to the overall retail fuel prices. Currently, petrol is taxed at a little over 100 per cent and for diesel taxes come at around 66.48 per cent. These taxes include Central excise duty and VAT. The rising oil prices have seriously impacted the state of the economy by upsetting the prices of several essential commodities in the country.  If the prices of commodities increase further in the market riding on the higher oil prices, the government will have to face the wrath of the people. It should not forget 2019 Lok Sabha polls a few months away.

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