Too dependent on tax revenues from oil
The reported buoyancy in indirect taxes may have much to do with rising oil prices. The finance minister has stated that soaring consumption taxes — by 25 per cent during April-December — cannot imply economic slowdown, but it is possible that higher taxes on petroleum products have revved up the overall figure.
True, central excise duty collections have soared a huge 31.6 per cent in December alone. It seems to suggest smart increase in output generally. Note, however, that the prices of imported crude did double last year (albeit from a low base), and given ad-valorem duties like customs and excise, the revision would have led to a significant surge in tax revenues. Figures available for the first half of 2016-17 at the Petroleum Planning & Analysis Cell site show that indirect oil taxes have surged by over 20 per cent for the Centre.
It is also a fact that retail taxes on petroleum products add up to about 40 per cent of total central indirect tax collections. So, it cannot be gainsaid that oil has contributed heavily to the seeming surge in indirect taxes. However, we do need to modernise our indirect tax structure, broaden the tax base and not be much too disproportionately dependent on petroleum products for revenue. The cascading nature of taxes on oil products, with tax on taxed items par for the course in petroleum, only adds to the surge in tax revenue. There is a paradigm shift away from oil and fossil fuels, and in the transport sector, non-oil-fuelled vehicles seem likely to become commonplace much sooner than expected earlier.
Hence the need to rationalise taxes on oil products in a timebound fashion. Besides, we need to have goods and services tax for petro-products so as to boost efficiency in transport and logistics. Top-up cesses might be warranted, on account of pollution/greenhouse gas emissions.
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