Fall in fuel prices puts CM in a bind over revenue mop-up

It will be a tight-rope act for Chief Minister Siddaramaiah while dealing with commercial taxes in financial year 2015-16 as he will have to contend with less than anticipated revenue due to fall in fuel prices.

Siddaramaiah, who holds the finance portfolio, will be announcing preparatory steps to usher in Goods and Services Tax (GST) regime in State when he presents the budget proposals on March 31.

The reduction in petrol and diesel prices over the last few months, following fall in global crude oil prices, has put paid to Siddaramaiah’s fiscal balancing act. Petrol prices stood at Rs 80.18 per litre and diesel at Rs 66.18 per litre when he presented his previous budget. One year down the line, petrol prices are hovering around Rs 66 a litre and diesel at Rs 54.

The State has kept auto fuels out of Value Added Tax (VAT) regime and charges 26 per cent sales tax on petrol and 15.65 per cent sales tax on diesel. In addition, five per cent entry tax is levied on every litre of petrol or diesel coming into the State. Hike in fuel prices automatically enhances cash flow to the State exchequer and vice-versa.

The State government, which had anticipated around Rs 7,500 crore from sale of petrol and diesel in 2015-16, may face shortfall of Rs 500 crore, following reduction in fuel prices, sources said. While budgetary target at Rs 42,000 crore may be reached, the shortfall, due to cut in fuel prices, will have to be factored in. VAT slabs had been hiked from 5 to 5.5 per cent and from 14 to 14.5 per cent in August 2012 for one year. The then BJP government had hiked the slabs to mobilise Rs 1,000 crore for drought relief and to fund crop loan and interest waiver scheme for farmers.

However, since Siddaramaiah decided to continue with the same slabs, there can be no rollback in VAT slabs for next financial year, too, sources said.

Meanwhile, the commercial taxes department may start providing provisional GST numbers to traders from April 1. Siddaramaiah is likely to announce steps to strengthen Electronic Upload of Purchase and Sales Statements system for traders in preparation for ushering in GST regime from April 1, 2016, in the State.

According to the Federation of Karnataka Chamber of Commerce and Industry State Taxes Committee chairman B T Manohar, introduction of GST will result in both central and state taxes being collected at point of sale, thereby, eliminating the process of collecting tax on tax and resulting in lower prices of consumer goods.