Taxing the driver

by March 17, 2020 0 comments

The excise hike in petroleum prices is understandable given the spread of Coronavirus but it has to be a temporary step

The Coronavirus has spooked the stock markets — gains of the past 11 years following the global financial crisis have been wiped out in just over 20 trading sessions in India and the rest of the world. Some of this is undoubtedly due to the automated algorithms controlling trading but even as humans wrested control, there is a complete lack of confidence in the markets. That is because the lockdowns imposed by Governments across the world will have significant impacts on economic activity and sectors. Effects will likely be even more severe than those of the 2008 crisis as there will be thousands, possibly hundreds of thousands of dead people at the end of it, if at all the end can be in sight right now. Without economic activity, tax collection is likely to nosedive. In this environment, most Governments have cut taxes to encourage economic activity. Thus, raising taxes on mobile phones was not necessarily a move that can be defended. But the Government is justifying the increase in excise duties on fuel by saying some benefits of cheap crude have already been passed on to the consumer. While we know that Congress leader Rahul Gandhi is railing against this, the fact is that the Government is taking advantage of the fall in global crude prices. Surely, people at the pump could have been given a break but the fact is there will be major costs to the Coronavirus outbreak in India, whether for quarantine centres or testing kits. And then there will be other costs as well — that of reviving and rebuilding economic activity when the crisis subsides. Aviation, travel and tourism sectors have already taken a massive hit. There will be companies who may not be able to survive the outbreak and reconstruction means money that’s going to be in short supply. We must not expect things to get any easier over the weeks or months. Question is while even Rs 1 excise duty hikes have inflated revenues before, will this one work in a low-consumption scenario?

However, this excise duty hike must be a temporary step only as this can  start pinching customers when Saudi Arabia and Russia start playing nice with each other again. While taking advantage of the situation to raise some money in tough times is not a bad thing to do, this must just be a stopgap.

(Courtesy: The Pioneer)

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