Tax revenues from petroleum products are on the decline in the State. Collections were a mere ₹ 3,228.83 crore during the first quarter of this fiscal compared to ₹ 3,521.24 crore in the same period last year.
It is a worrying development as the government relies heavily on oil taxes to meet its budget requirements, apart from taxes on liquor.
Commercial Taxes (CT) officials are exploring the reasons behind the dip. Quoting “preliminary findings”, the officials say that fall in crude oil prices, slow down in construction industry, fall in automobile sales etc. are some of the reasons.
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Since oil prices have started rising following US sanctions on Iraq etc. the previous government had decided last September to slash the cess from ₹ 4 per litre to ₹ 2 per litre. It is estimated the slash has resulted in a burden of ₹1,120 crore per annum on the State exchequer.
This includes foregoing a tax revenue of ₹ 820 crore from diesel, and ₹ 300 crore on petroleum owing to the steep rise in petroleum prices then.
Crude oil prices, however, began declining in 2019 which impacted tax revenues of the State.
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Unlike excise duty that is levied at a fixed rate by the Central government, the Value Added Tax (VAT) is ad valorem. This means that if prices go up, the VAT amount increases accordingly.
Consequently, the State earns more when petrol and diesel prices go up.
“The State levies ad Valorem on point of the first sale under Andhra Pradesh VAT Act 2005. As a result, with a fall in the petroleum prices at first point of sale, the government’s revenues have taken a dip,” sources say.
Construction industry slump
Similarly, the construction industry was hit for various reasons, including the rise in cement and steel prices, non-availability of sand etc. Of this, sand scarcity is the latest reason.
But the steep rise in steel and cement prices have hit the realty sector very badly impacting the State economy. Also, the “across the board” slowdown in the automobile sector is seen the State aslo with vehicle sales plummeting.
“Resultantly, sale of petroleum products has also declined,” officials reason.
“Firstly, tax revenues from petroleum products would improve only if international prices pick up. Secondly, as reservoirs get filled agricultural operations are likely to pick up. It increases diesel consumption. If the agricultural season is on a positive note, we can expect that automobile sales would also pick up,” says a senior official, who did not want to be quoted.
To get a snapshot, tax on petroleum products fetched ₹ 7,026 crore in 2014-15, and touched ₹ 20,839 crore in 2018-19. Of this, diesel fetched ₹ 4,437 crore in 2014-15 and ₹ 6,456 crore in 2018-19. Similarly, tax on petrol netted ₹ 1,959 crore in 2014-15 and ₹ 3,093 crore in 2018-19.