Fuel tax hike | Karnataka marshals South states against Centre’s 'financial bias'

The Siddaramaiah-led Congress government in Karnataka recently raised the sales tax on petrol and diesel, prompting the BJP to launch statewide protests. 

In response, the Congress is preparing a counteroffensive, alleging that the BJP-led NDA government at the centre has been unfairly distributing tax revenues, disadvantageous to southern states like Karnataka.

The state government is further is goading southern states to open a front against the Centre’s 'bias' in favour of states like Uttar Pradesh and Bihar at the cost of southern India. It has justified the tax hike as necessary in order to support its guarantee schemes and undertake developmental projects.

'Renewed fight'

Government leaders argue that despite collecting Rs 2,50,000 crore annually in cess (which is not shared with states), the Union government disproportionately favours Uttar Pradesh and Bihar over Karnataka, Tamil Nadu, Kerala, Telangana and Andhra Pradesh.

A senior Karnataka minister told The Federal that the state government plans to renew its fight against discriminatory tax allocation by the Narendra Modi government.

“The government will also write letters to Prime Minister Narendra Modi and Finance Minister Nirmala Seethraman. We will also write to all BJP and JD(S) MPs of the state including Union Minister HD Kumaraswamy,” he added.

Earlier actions 

Before the Lok Sabha election, Karnataka moved the Supreme Court to seek Union government compensation for a major drought. After the apex court’s intervention, the Centre gave Karnataka Rs 3,454 crore against the Rs 18,000 crore sought as relief.

After Karnataka, the Tamil Nadu government filed a suit in the Supreme Court, claiming the Union government was withholding relief funds for natural calamities.

Karnataka is now thinking of again approaching the Supreme Court over what it says is unfair tax devolution. The state might move a public interest litigation (PIL) for its rightful share of taxes, Karnataka’s large and medium industries minister MB Patil said.

“Although states like Karnataka, Tamil Nadu and Telangana contribute a larger share to the cess collection, they are not receiving a fair portion from the Centre. Instead, a larger share is allocated to states like Uttar Pradesh and Bihar,” he stated.

Guarantee schemes

Patil shared his views on the social media, tagging the Chief Ministers of Tamil Nadu and Telangana.

The Modi government collects GST from sources like income tax and central excise duty, he said, adding that the state has no sources to tap except registration and stamp duty, vehicle tax, sales tax on petrol and diesel, and sales tax on liquor.

The Congress government in Karnataka argues that to continue implementing its guarantee schemes, which require Rs 55,000 crore, it needs to increase petrol and diesel prices, thereby indirectly generating revenue.

This will be an addition to the excise and motor vehicle taxes and through stamp and registration taxes.

Southern front

The BJP says this will lead to price hikes in various sectors including auto-rickshaw fares and goods transportation and raise the cost of essential goods.

As a counter, the Congress wants to highlight the Modi government’s policies that allegedly disadvantage southern states.

The Karnataka government, supported by Tamil Nadu and Kerala, previously protested against the Union government's allocation practices. Siddaramaiah, along with his Cabinet, even led a Chalo Delhi protest on February 7.

INDIA bloc allies

The state government is committed to securing the funds needed for development projects and guarantee schemes by fighting for a fair share from the Central government. In line with this, it is garnering support from INDIA alliance member governments in Tamil Nadu (DMK), Kerala (LDF), and Telangana (Congress). , it is trying to plans to continue this struggle. 

"We are even trying to convince the Andhra Pradesh government to join hands to protect the interests of southern states,” a Karnataka minister told The Federal. Andhra Pradesh is currently ruled by N Chandrababu Naidu-led TDP, which is a key ally of Modi's coalition government at the Centre.

Higher fuel taxes

The Central government had previously increased the excise duty on petrol from Rs 9.21 to Rs 32.98 and on diesel from Rs 3.45 to Rs 31.84, adding a significant.

Siddaramaiah had called on the Modi government to reduce the taxes for the public’s benefit. But his government has now increased the tax on petrol to 29.84 per cent and on diesel to 18.44 per cent.

Even after this increase, the tax on petroleum products in Karnataka is lower than that in other southern states and Maharashtra, which has a comparable economy.

In Maharashtra, the tax on petrol is 25 per cent, with an additional tax of Rs 5.12, and that on diesel is 21 per cent.

State's share of GST

Siddaramaiah said on Monday the Modi government has created an environment in which a tax increase is inevitable. The situation was created due to improper devolution of GST revenues to states, he added.

After the implementation of the GST system by the Centre, the scope for resource mobilisation of the state governments is limited. Since the Union government has 'monopolised' GST, the tax collection opportunities which were the prerogative of the states are gone, Siddaramaiah said.

The Congress has also asked BJP MPs in Karnataka why they are not putting pressure on the Centre to release money that 'belongs' to Karnataka.