TN Finance Minister P Thiagarajan Exclusive On GST Councils Plea To Exempt Fuel | News Today

Tamil Nadu Finance Minister Palanivel Thiagarajan exclusively spoke to India Today’s Consulting Editor Rajdeep Sardesai as GST Council asked the Center to exempt petrol and diesel from GST.

Move from there to the other big focus because the goods and services tax council of all the state finance ministers has decided petroleum products will not be brought under the ambit of goods and services tax this means the center and the states will continue to impose their taxes on fuel issue was taken up by the gst council following a direction from the

Kerala high court but it was clear that all the state governments almost unanimously said this was not the right time to bring fuel under gst listening to nirmala sitharaman the court had suggested that the matter be placed before the gst council so all the direction of the quote today it was brought on to the table for discussion members spoke very clearly

That they wouldn’t want it to be included in the gst several members said it very clearly the gst council felt that it wasn’t the time for them to bring the petroleum products into the gst and with no breakthrough on bringing fuel prices under gst i’m joined by one of the country’s most erudite finance ministers the finance minister of tamil nadu dr panali

Venda thyagarajan joins me appreciate your joining us dr thiago rajan the big question that’s being asked is today at the gst council meeting it seems all states unanimously opposed even initiating talks on in bringing in a petrol and diesel under the gst ambit why why this resistance is the resistance primarily from states who are worried that you will lose a

Primary source of revenue uh first of all thanks for having me thanks for the kind introduction let me just say that all of these states position should be seen in context right let us start from the fact that india is about the only country where 100 of direct accession lies only with the union in the constitution a substantial portion of indirect taxation

Sales tax pat et cetera was with the states after the onset of gst we have also lost a large part of that variability that flexibility that authority the two real main authorities left in the hands of the states now are the taxation of alcohol and related products and petrol diesel and related products so inherently states are reluctant to give up one of the last

Legals left in the entire gamut of taxation with the bulk of it residing in delhi now some could argue that the gst council is actually the voice of everybody but as we have seen in the last five years effectively what the union wants the union gets now there’s yet one other issue in my note to the council which i’ve sent you a copy please go look at our response

To that point we have pointed out that in the last seven years the union’s taxation of petroleum diesel has risen by between five and ten times depending on the product you know less for petrol and more for diesel and not just that the ratio of excise duty which is shareable to states versus assassin surcharge which is only retained by the union has swung from 90

Or so excise to 4 excise 96 percent of the union’s taxation is incessant churchill under these circumstances where we to give up the state taxation and put it into gst it is completely a huge revenue loss for us so once the union agrees to remove cesar church we will reconsider our position no so therefore that’s precisely it why not at least have a discussion

On it it seems the center claims all we want is why don’t the states come up with a timeline let’s discuss this is what is being suggested yeah by the center i think i think that’s a bit disingenuous if you get somebody to send you the actual agenda this was a matter that was taken into the high court of kerala and the high court rule that the union and the gst

Council should consider and come back with this considered view the considerable view of the council is that it’s not an appropriate fit that’s that’s all it was it has no it wasn’t as if it was imperative that a timeline had to be announced the court require required the judgment required that it be considered it was considered and a response was given but do you

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Agree fundamentally that as a result of this center and states are free to raise uh excise duties on fuel prices and as a result of this cascading effect of taxation the consumer is suffering there is one study which suggests that if ga if fuel prices come under gst the cost could come down by as much as 50 do you broadly agree that bringing fuel prices under

Gst would ensure a greater rationality in fuel prices yes or no i think you have the wrong end of the stick right right now there’s nothing to prevent states or the union from lowering or raising taxes there’s no requirement there should be only one direction for example after we came to power less than four months ago we have lowered the the state tax on petrol

Because we wanted to see the multiplier effect and because we committed to doing so our predecessors the admk regime had never lowered it they only ever raised it and the union has mostly raised it as i said between five and ten times so if you’re looking to move it to gst as a way of putting a lock on the individual decision-making abilities of the states and the

Union that is a different perspective if you say right now it only goes up it doesn’t go down that’s based on individual choices right now there’s flexibility to do almost anything you want why would anybody willingly give up that flexibility i you know look at it you know i often say this where you stand depends on where you sit mk stalin chief minister and

Your leader in on january 25 20 2018 says only if the fuel prices are brought within the purview of the gst or the excise duties brought down by the center petrol and diesel could be supplied to the general public at a reasonable price now this is what is said when you’re in the opposition now when you’re in government you’re virtually suggesting look we cannot

We cannot do this because we are losing our right or our power over collecting revenue through uh diesel and petrol yeah please read my submission i say that under the history of the last seven years and the rates as they are now yes we are not willing to consider it i have clearly stated let me read the actual words of my submission just give me a second this

Cannot be examined in isolation without examining the overall resource distribution yes therefore if and when the union were to drop the levy of all cess and surcharge on such products we would be happy to reconsider our position at such a time now let’s not forget that between 18 and 21 the union has shifted a whole bunch of excise away once in 20 and once in

21 the ratio of exercise to session surcharge was only about 65 35 in uh 19 2018. it is now four percent uh exercise it’s a 96 percent session such as we have been squeezed we used to get about twenty twenty five price per liter now we get about two right so we also have to find some way to make revenue no no so it’s all boiling down to equitable allocation of

Revenues and resources collected through various forms of taxation we thought and that was the presumption when the gst came in that we would have a regime which would ensure that which would ensure an equitable distribution and would thereby give states also far more revenues than they were earlier collecting that was the that was the basis for a gst a a uni a

Taxation system that was simpler rational and ensuring an equitable allocation of resources are you saying the system itself has failed and to that extent petrol and diesel are a prime example of what you’ve not been able to achieve through it yeah i’d go one step more than that i think that the ambitions around gst were manifold and different for different people

So earlier in my note i point out that the whole notion of the benefits of gst have failed to be realized it was never about a kind of guarantee of raising incomes it was supposed to be a ease of doing business yes a standardization of interstate commerce and therefore a shift which we all understood of taxation away from production towards consumption which would

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Help the poorest states where they consume more than they produced yes it was actually going to be not that different from a state like tamilnadu because our genie coefficient our inequality is low and therefore our per capita consumption is high we are both a high producer and a high consumer so we did not expect that it would have that much impact on us but let’s

Say if you take a maharashtra definitely they were going to lose revenue because they are much higher producer than consumer and if you take your uttar pradesh they are definitely much higher consumer than producer so they were going to get the benefit in fact when you look at the data and i’m saying kovit of course messed up everything but let’s leave kobe down

Pre-covet from 2017 to 2020 the benefits of the system or the expected benefits have not been realized whereas the unexpected complexities have been very very high and i’ve stated this again in my document yes so i would go back and say that not only were we kind of over optimistic on gst there is a more fundamental problem here as you know there are two types of

Taxation one is direct and one is indirect everything we talk about gst sales tax petrol diesel alcohol all of these are indirect taxation indirect taxation is inherently regressive because it is a point of sale taxation that we don’t know who we levied on and we know for sure that the poor the middle class spend a greater proportion of their income or wealth on

Taxable goods and services rich people don’t consume 100 times more than poor people but they make hundred times the money sometimes so it is really direct taxation that ought to be the basis of all discussions of fairness whether it is center to state or whether it’s rich to poor that power is hundred percent with the union you know there’s no if you go to america

For example or china the direct taxation powers devolve all the way down to the cities the cities the states the union or the federal government we don’t have that so that’s where the real problem lies because we would like to do direct taxation which is much more progressive and fair you know so therefore what i’m sensing is that what you’re suggesting is actually

Gst has weakened federalism we thought that it would strengthen perhaps some of the federal impulses within our system that states would feel uh that they were getting their due that’s not happened is what you’re suggesting therefore give me an alternative because the fact is people are being burdened oil prices are even when global oil prices are low the burden

Is being passed on to the consumer therefore people are saying look if you want a fair system which was we were told it would be fair transparent based on market prices not happened now yeah you have a huge solution yeah i don’t think you should limit gst to a discussion only of petrol and diesel right petrol and diesel was never mgst before and it’s not now so

If you’re going to look at petrol and diesel you should look at what has been the behavior of state governments over the last let’s say seven eight nine years what has been the behavior of the union government in terms of taxes of course oil prices have dropped from uh above 100 to you know first down as low as 30 and now 50 60 70. what has been the taxation model

Of the union government what has been the taxation model of the stadium for example the honorable union finance minister made a statement a few weeks ago when we cut the petrol tax by three rupees she said tamil nadu is playing trickery they raised the rates by seven rupees in two tranches and now they’ve cut it by three they’re just playing games and i’m at the

Point no no it’s not it’s the exact opposite of what you said it’s not where i stand depends on where i sit when we were in opposition we oppose the admk raising the taxes twice and therefore we have come to power and because of change of regime we have cut the price the taxes just as we said that we you should not raise so you know there’s a whole lot of issues in

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Petrol tax now go back to gst for a second gst in my opinion was not particularly well thought out or implemented i’ll just give you one example this is the full agenda book for this meeting it’s 500 something pages the crucial part of this in terms of rate setting is item number uh fitment committee item number 14. it is 120 pages worth of decisions around rates

For products going from coconut oil to lubricants to uh tools to any number of things what is this fitment committee it is not a committee of elected officials who are sitting and doing this work now you have a meeting that goes for six hours or eight hours of which there are 18 agenda items one of those agenda items is this fitment committee it’s a recommendation

That has literally hundreds or tens of items right right how is this a democratic process where it’s a federal process where we’re picking up anything is it realistic that you can add this discussion in the time that we had to meet right i think the system itself is fundamentally flawed in its design so in conclusion you’re calling for a complete revamp re-look

At the way the gst council system works am i correct very quickly yeah i’ve been consistent from 2017 before the implementation of gst a friend of mine and i wrote an article in the mint newspaper and we said there is a downside of one nation in one tax you will lose rights to the states it will be a federalism kind of black hole if things don’t go exactly as

Envisioned bro ideally in the council and in other mechanisms and the fears that we had have come true have come true in space so i think the fundamental point first meeting i attended as a member the 43rd meeting i gave a comprehensive document stating what were all the issues that were wrong and what all i thought could be fixed or made better and i said this is

A once in a lifetime chance for us to set this right because most of the members here unlike me have been around since the start of it anyway we have a natural breaking point coming at the end of the compensation period of five years we also have a disaster like kobe the once in a generation or once in a century disaster that sharpens the mind because it tells us

What the real problems are you know what buffett said when the water goes out you realize who’s swimming with the trunks so we have discovered what the real extent of problems are let’s use it to do fundamental overhaul is the problem though in conclusion a trust deficit with between opposition rule states and the center or is it a fundamental problem of just the

Way it’s structured between states and the center i think it is a problem of immense complexity that was rushed to implementation without adequate thought adequate testing adequate kind of iterative consultation design revamp etc that is the fundamental problem all this is about politics and all secondary tertiary yes there are going to be differences of opinion

Not just about opposition was not opposition about net donor states versus net recipient states there’ll be all kinds of differences opinion but if the system itself is profoundly flawed in its design and its implementation then that’s the source of all problems everything else is secondary to that just exacerbates the problem let’s leave it there i think you’ve

Given us a sense of just why we are still struggling to get fuel petrol and diesel within the gstm but it’s a far more complex issue that will require much discussion but for now dr palladin as always a pleasure talking to you thank you very much for joining me here on the news today thanks thanks for having me thank you you

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TN Finance Minister P Thiagarajan Exclusive On GST Council's Plea To Exempt Fuel | News Today By India Today