TN Budget: Call on liquor sale, hike in power tariff likely on agenda

Based on the DMK government’s recent release of a white paper on the state's finances, experts say key decisions may be taken on increasing taxes on crude oil, VAT and excise duty on liquor and revising the motor vehicle tax

Representative Photo: iStock

Following the Tamil Nadu government’s release of a white paper on the state’s finances, expectations are high that the state budget, slated to be tabled on August 13, is likely to see major announcements on four key fronts – petroleum products, state excise duty and value added tax (VAT) on liquor as well as taxes on motor vehicles, and electricity.

Even though the government has hinted at hiking the taxes on crude oil, dealers hope it would come up with some form of subsidy to support a particular set of income group.

In June, state finance minister PTR Palanivel Thiaga Rajan had said that there is no chance of reducing the VAT on petrol and diesel, because the share of Union excise duties (which is shareable with states) has been brought down.

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The same was reiterated in the whiter paper that Rajan recently released: “The Union government’s levies on petrol have gone up substantially in the past seven years since 2014. These levies were ₹10.39 in May 2014 and by May 2021 these had gone up to ₹32.90 per litre. This is an increase of 216 per cent. Apart from increasing the central levies, the cess and surcharges increased very substantially to deprive the states of their share of the revenue.”

KP Murali, president, Tamil Nadu Petroleum Dealers Association said that they expect that the VAT would not be increased in the upcoming budget.

Also read: TN white paper on state’s finances hints at tax hike in upcoming budget

“The minister has said that a good government will collect reasonable taxes from the ‘haves’. If one goes by that claim, we expect that the government will not increase the VAT on petrol and diesel further. When about 80 per cent of petrol users are two-wheeler users, we hope the government will come up with some kind of subsidy to support a particular set of income group. The increase in taxes on diesel won’t affect the public much, since the large volume of diesel usage is by the commercial establishments,” he said.

To prohibit or profit from liquor?

With liquor being a major source of revenue for the state exchequer, the government which has already promised a phased prohibition, will be expected to take tough call on the revenue-generating source during the budget.

When it comes to state excise duty and VAT on Indian Made Foreign Liquors (IMFL), the white paper has stated that a significant change made in the definition of “income” in the Finance Act, by the Union government in 2013, affected the levying of vend fee and licensee fee which were part of state excise duty on TASMAC (Tamil Nadu State Marketing Corporation Limited).

“To overcome this difficulty in March 2013, the state government removed vend fee and reduced the license renewal fee rate substantially. This resulted in a decline in excise duty collection which was intended to be made up by increasing the VAT levied on the sale of IMFL. Thereafter, the state government took a number of measures to curtail the sale of liquor by reducing the working hours of shops and closing down of a number of retail shops. The Supreme Court also ordered closure of liquor shops along highways. All these factors have also caused further drop in revenue from the sale of IMFL” the white paper said.

It is to be noted that TASMAC is a major source of revenue for the state government. But with the state government having resolved to prohibit liquor in a phased manner, it is a million-dollar question if it would want to effect any changes in levies related to liquor sale.

“The government should take a policy decision whether to run the liquor shops or not. It has promised it will implement a step-by-step prohibition. At this time, a government should not depend only on the revenue from liquor,” said N Periyasamy, state president, TASMAC Employees Association.

Periyasamy said the government has not bothered to regularise TASMAC employees even though it has been selling liquor under the brand name for the past 18 years. He adds that the regularisation of these employees could have opened a new revenue source for the government.

“Most of them are working as contractual workers with TASMAC. If their work is regularised, then the government can collect professional tax from them. Also, the government thinks that when tax on liquor sale is hiked, it will bring down the number of alcohol addicts. But as we have seen, it is a failed concept. So, if the government intends to collect tax at all, it must impose taxes on the production side rather than on the sales side,” added Periyasamy.

Taxes on vehicles

As the white paper claims that tax rates on motor vehicles have not been revised in the past 15 years, many expect the government is all set to revise the same this time around.

Data from the Road Transport Yearbook indicates that although the number of vehicles registered in Tamil Nadu is higher than in neighbouring states, the total revenue in the form of motor vehicle tax is much lesser.

R Vangili, president, Namakkal Taluk Lorry Owners Association rubbishes this claim

“The claim is wrong. In the past 15 years, the state government has revised the tax rates many times. The revenue earned by the state’s road transport offices alone stands at ₹6,000 crore in a year. Of this, only ₹380 crore is spent on salaries, while the rest is at the disposal of the government. What more does the government want?” Vangili said.

He added that even during the lockdown, when road transportation was limited and diesel prices were down in the international market, the Union and state governments kept on increasing the excise duty.

“While presenting the white paper, the minister hinted that there may be a further increase in the taxes on petrol and diesel prices. They should not do that as already about 25 per cent of lorry owners have left the industry due to fuel price rise,” Vangili said.

However, urban infrastructure expert Daniel Robinson believes an increase in road tax or any other tax related to motor vehicles will bring down the congestion on roads.

“But how are you going to invest the amount collected from tax is the question. If they purchase more buses, the public transport will be strengthened and thereby the social mobility will also increase,” he said.

‘Targeted subsidies’ for electricity

With the white paper coming down heavily on the power taxation regime which allows the affluent to pay the same tariff as the poor, experts say the government may be looking at revising the power tariff while keeping aside subsidy benefits for people from poor backgrounds.

Also read: TANGEDCO’s green laws violations lead to rising red ink for exchequer

“The cost of supply of power stands at ₹9.06 per unit, but it is being purchased for ₹6.70 per unit and the domestic tariff subsidy is ₹1.09 per unit. It is true that the tariff has not been revised for many years. So as the minister rightly said in the case of property tax, that a person from the Boat Club and a person from Ennore pays an equal amount of property tax and that cannot be accepted, similarly, the tariff is equal to both rich and poor, which means those who consume more electricity are receiving more subsidies,” said K Vishnu Mohan Rao, power policy researcher, Citizen Consumer and Civic Action Group.

According to him, the tariff may be increased and the government may go for ‘targeted subsidies’.

“Since the TANGEDCO (Tamil Nadu Generation and Distribution Corporation Limited) is making loss, we may expect any announcement on breaking the establishment into two as generation company and the distribution company.” he said.

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