Vantage point

Wednesday, September 14, 2005

Agreeing with the Left!

Brace yourself for a shock. This blog agrees with the Indian leftists on an issue!! And no, it is not a social issue on which libertarians and leftists often find myself agreeing. It is actually a hardcore economic issue.

I agree not because I have suddenly developed a liking for leftist policies, but because the Leftists, for a change, are talking about reducing taxes. Yes, that's right. The Leftists who are usually in favour of taxing everything but the red colour, are actually taking a stand which opposes the government hiking its own revenue collections under the excuse of global oil price hike.

The Times of India reports,

CPI-M leaders, who met Prime Minister Manmohan Singh Monday to discuss an oil price rise, had suggested that the government give up an increase in customs duty and forgo an increase in excise duty due to higher global oil prices.

One of the CPM's "AC Studio Comrades" made a very good point on NDTV on the day of the price hike. The crux of his argument was this -

Obviously, there is a surge in global oil prices. So there will be an additional burden on consumers. If the cost price of petrol goes up, then the consumers will have to pay it. However the government is retaining the same tax structure on petroleum products. This means that not only is the consumer paying for the increased cost price, but he is also, for some reason, giving the government more money through customs, excise, sales tax, and various other cess amounts.

When the government presented its budget, it estimated its revenue from petroleum products assuming the price of oil as $40 per barrel. So if we assume the total tax rate for petroleum products as "x", then the government estimated a revenue of x*40 through petroleum products. Now, since the oil price has gone up from 40 to 70 dollars, there will be some increase in the prices to adjust for it.

But if the price has increased to more than 40, then to keep x*40 constant, there should be a reduction in "x", i.e the total effective tax rate. However x remains the same. So what the government is doing is, boosting its own revenues in a clandestine manner. So the government should reduce the tax rates even as it hikes global oil prices.

Good point, and I by and large agree.

I have already written on this blog about how the government milks consumers of petrol. More than 50% of what we pay for petrol goes into the government coffers. The petrol prices in India are already substantially more than the prices in our neighbouring countries. Hiking them further without keeping the tax collection constant is nothing short of highway robbery.