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Karnataka chief minister H.D. Kumaraswamy. Photo: Mint
Karnataka chief minister H.D. Kumaraswamy. Photo: Mint

Congress strategy on fuel price backfires

The decision also busts the Congress party leaders' claims that the NDA government at the Centre could cut taxes on petrol by up to 25 a litre, but was not doing so

Bengaluru: In its budget for 2018-19, the Congress-Janata Dal (Secular), or JD(S), government in Karnataka on Thursday raised taxes on petrol and diesel, with chief minister H.D. Kumaraswamy seeking to raise resources for farm loan waiver and other welfare schemes.

Congress, the main opposition party at the centre, has been very critical of the Narendra Modi government’s decision not to cut excise duty on petrol and diesel to offset the impact of rising crude oil price on retail prices.

For Karnataka, raising taxes on petrol and diesel is a pragmatic way to find resources given the fiscal realities of the state, which has projected a fiscal deficit of 40,753 crore or 2.89% of gross state domestic product for FY19 despite the tax increase and some austerity measures.

The decision also busts the Congress party leaders’ claims that the NDA government at the Centre could cut taxes on petrol by up to 25 a litre, but was not doing so. The central government, which has announced a massive health insurance programme for 100 million households and a sharp increase in support prices to summer crops, chose to keep fiscal discipline rather than taking a populist measure of cutting fuel taxes.

Kumaraswamy said in his budget speech that the first priority of the coalition government in the state is to mobilize the necessary resources to fulfil the promise of farm loan waiver. As an extra revenue raising measure, the state raised tax on petrol from 30% to 32% and diesel from 19% to 21%. “By this measure, there will be a modest increase in the price of petrol by 1.14 a litre and that of diesel by 1.12 a litre."

It is believed that petroleum taxes roughly account for over one-third of state governments’ tax revenue. Governments generally favour taxes on fuel over other forms of taxes as it is easier to collect. Karnataka also raised the tax on electricity from the existing 6% to 9% in the budget.

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