Cow cess: States using fuel tax to mop up revenue does not augur well for their growth or economic health
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The Madhya Pradesh government’s recently constituted ‘Cow Cabinet’ has come out with its first proposal – to add yet another cess on sales of petrol, diesel and LPG in the state, in order to mop up funds for cow welfare. According to media reports, the Shivraj Singh Chouhan government plans to add a cess of 15 paise per litre on petrol and diesel, and Rs 10 per cylinder on LPG, to raise over Rs 200 crore.

The MP government has justified the move citing a similar cess already imposed by Punjab, Haryana, UP and Rajasthan. While there can be no quarrel with the aim of this revenue-raising exercise – the cow is a revered entity in Indian culture – the way that MP and other States have gone about raising the resources for it does have larger implications, not only for the common man who ends up bearing the financial burden, but for overall growth and the long-term economic viability of States.

After the roll-out of GST, States have had increasingly fewer options for raising revenue. This has led to an ever-greater dependence on taxes on fuel and alcohol sales, which are both outside the ambit of the GST. With the Centre failing to honour its commitment on GST compensation and overall collections falling due to the pandemic-induced slowdown, as many as 22 States and Union Territories have resorted to increasing duties on petrol and diesel, while 25 States and UTs have hiked alcohol taxes.

The resultant increase in fuel prices has ranged from 60 paise, to as much as Rs 8 per litre on petrol and diesel, while alcohol prices have doubled in some cases. While one can debate whether alcohol consumption is a sin or not, any increase in fuel prices tends to be inflationary and anti-growth. States need to discover more sustainable revenue alternatives.

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Free Press Journal