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High price for easy tax route
January, 30th 2009

Taxing petrol and diesel is the easiest way to mop up money
for a state that is otherwise a laggard in mobilizing taxes. West Bengal has a poor
revenue mobilization record despite the Re 1 cess per litre of petrol plus the sales tax on fuel, without adding any value to the product. That seems to be why the government passed on the burden of its inefficiency to the consumer, a decision that might cost the state in revenue because transporters will buy fuel from neighbouring states.

According to Planning Commission reports, Bengal ranks 17th in tax mobilization vis--vis state domestic product (SDP). This has hampered development activities in Bengal, including those for which the state government has to scrape out matching grants to central assistance.

This is a cause of concern for the ruling CPM, which is not being able to meet people's expectations. The state highways bear testimony to the plight of infrastructure in Bengal. The cess on petrol, apparently to improve roads, seems a cruel joke. The Planning Commission's half-yearly review of the Bengal government for the 2005-06 fiscal says: "The tax/GDP ratio at the national level is above 7%, while in Bengal it is below 5%." The government tried desperately to increase its tax collection in the following years, but the marginal improvement wasn't enough to match middle-income states.

Apart from cutting non-plan expenditure to a certain extent, the Buddhadeb Bhattacharjee government did not do much to identify new areas where it could introduce service charges. Liquor sale, online lottery, housing registration fees are still the main contributors, apart from sales tax.

Unable to tap the state's tax potential, the state finance minister chose the easy path one that might bore holes in the state's income projections on the oil count. Joydeb Sarkar, general secretary of West Bengal Petrol Dealers' Association, fears that a large chunk of transporters, particularly in the border areas of East Midnapore, Bankura, Purulia, Malda, Jalpaiguri, Cooch Behar and Darjeeling, will buy fuel from Orissa, Bihar, Jharkhand and Assam, where petrol and diesel are cheaper.

"The Bengal government will lose out in the process. So will oil pump owners," Sarkar said. The government had felt the pinch of such trade diversion when vehicle owners started registering their cars in neighbouring states some years ago, as the registration fee was too high in Bengal. However, the government made peace with other states and fixed rates at par with them.

Economist and director of Centre for Social Sciences, Kolkata, Sugata Marjit, feels the government should have tapped other sectors, particularly service, instead of burdening consumers with sales tax in the days of economic slowdown.

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