Centre, State Should Cut Taxes On Fuel, Says Niti Aayog Boss

New Delhi: Niti Aayog vice chairperson Rajiv Kumar on Monday called for a cut in taxes on fuel, both by the centre and the state. Mr Kumar also told NDTV that he was strongly in favour of fuel being brought under the Goods and Services Tax or GST, and he dismissed predictions that crude oil would reach $100 per barrel by the end of the year. Mr Kumar pointed out that international crude oil prices had fallen over the last few days and predicted a subsequent fall in fuel prices, but he also said that this would still be a good time for the government to cut taxes, if enough fiscal space could be created.

"A price rise in oil does work like a tax on the economy, because it cuts into disposable incomes, it also acts as a cost push as it entrenches inflationary expectations," said Mr Kumar. "I don't think we should wait much longer to see the price trends, the government has to act."

The Niti Aayog chief emphasised that as each rupee's cut in excise duty could lead to a revenue loss of Rs 13,000 crore, it is important for the government to ensure that there is enough fiscal space, or in other words, other sources of revenue, that it could count on. He expressed confidence that improving tax buoyancy and registrations under the GST net could provide that leeway.

Mr Kumar added that cutting excise duty could ramp up economic activity, and provide much needed relief to the common man.

"We are getting into the sowing season, and farmers would be using a lot more diesel, so it is useful for the cost of production in the agriculture sector not to be rising at this time," he said.

According to Mr Kumar, state governments would be in a better position to cut taxes on fuel, as they impose taxes on an ad valorem, or percentage, basis.

"On average states now impose 27% tax on petroleum products, this should surely be brought down 3-4% points," said Mr. Kumar. "That would really not still cut into their fiscal balance."

Mr Kumar also advocated strongly for fuel to be included in the GST net.

"I'm convinced that bringing all forms of fuel and energy into the GST net is a good idea, and it should happen sooner rather than later," he said.

While acknowledging that taxes on fuel were important for state revenues, he said that a formula could be worked out where states could be compensated and a higher tax band for fuel could be considered initially, even though adding more tax bands under the GST would not be ideal in the long run.

Mr Kumar dismissed predictions that crude oil prices per barrel could rise above $100 by the end of the year.

"The Saudis themselves don't believe that anything above 80 is good for them, because they know that at prices higher than that, global demand starts shrinking," he said. "It impacts revenues adversely, so they won't let that happen."