Lower Collections: Petroleum plays a drag on states’ revenue, widens fiscal deficits
One reason that partly explains the less-than-expected revenues of the states and widening of their
fiscal deficits last year is the low contribution of the taxes from the petroleum sector. While the Centre’s
tax revenue grew handsomely from the petroleum sector as it raised excise duty on petrol and diesel on
numerous occasions, the states witnessed lower collections from the sector. This happened since the
excise duty levied by the Centre is fixed on per litre of petrol and diesel, while the state’s levy of sales
tax or value-added-tax is a percentage of the price. So, as global fuel prices fell last year, the states could
not match up to the Centre in terms of revenues from the petroleum sector.
According to data from the Petroleum Planning & Analysis Cell (PPAC), the Centre earned Rs 1.35 lakh
crore as taxes and duties from the petroleum sector in the first nine months (April-December) of the
2015-16, as compared to Rs 1.26 lakh crore for the full year 2014-15. On the contrary, states’ collection
from petroleum taxes was Rs 1.18 lakh crore in the first nine months (April-December) of the 2015-16,
as compared to Rs 1.60 lakh crore for the full year 2014-15. As per the PPAC data for March 2016, the
central government taxes were Rs 21.91 per litre of petrol as compared to the state taxes of Rs 13 per
litre of petrol. On diesel, the central taxes were Rs 17.71 per litre while the state taxes were Rs 7.57 per
litre. Before taxes and dealer commissions, the price of petrol and diesel were Rs 23.96 per litre and Rs
21.30 per litre, respectively, the data shows. One reason the Centre could stick to its fiscal deficit target
of 3.9 per cent of Gross Domestic Product for 2015-16 was higher collections from petroleum taxes,
even as subsidies on petrol and diesel have been eliminated completely. For states, lesser collection on
petroleum taxes was reflected in total revenues being on the lower side. In a report on analysis of 18
state Budgets last month, HSBC said India’s states, on aggregate, clocked slightly wider deficits than
budgeted at the start of the year — 2.7 per cent of GDP revised estimate versus 2.6 per cent of GDP
budgeted at the start of 2015-16 — mainly due to much lower-than-expected revenue receipts. “This
(lower revenues) can partly be attributed to the rapid fall in oil prices and the resultant disappointment
in state government’s value-added-tax collections,” the report said. While excise duty on petroleum
products is the main source of tax revenue for the central government, for states it the sales tax and
value-added-tax on the sector.