THIRUVANANTHAPURAM: The introduction of a ₹2 per litre Social Security Cess on petrol and diesel in Kerala’s 2023 budget has reportedly backfired, leading to a sharp decline in official fuel consumption and a surge in illicit activities like smuggling and the manufacture of fake diesel, resulting in significant losses to the state exchequer.
Reports indicate that smugglers and counterfeiters are exploiting the resultant price differential, which has made fuel in Kerala more expensive than in neighbouring states.
Consumption Plunge: The Official Figures
Government data reveals a clear correlation between the cess implementation and the drop in sales. In the 2022-23 fiscal year, before the cess, Kerala recorded a sale of 53,68,400 kilolitres of petrol and diesel, generating a revenue of ₹11,534.2 crore.
However, in the cess-affected 2023-24 financial year, consumption dropped significantly to 52,49,500 kilolitres, with revenue also dipping to ₹11,188.09 crore. Provisional figures for the 2024-25 fiscal year anticipate consumption to stabilise around 52,66,000 kilolitres, projecting a revenue increase to ₹12,078.76 crore primarily due to the cess collections.
Cross-Border Smuggling Rises
The higher fuel prices in Kerala compared to states like Tamil Nadu and Karnataka, which have lower tax rates, have created a lucrative window for black-market operators. There are increasing reports of illegal movement of diesel purchased at cheaper rates from neighbouring states and sold within Kerala.
Further compounding the issue is the change in refuelling behaviour of large commercial vehicles like trucks and buses. These vehicles are increasingly filling their tanks in border states. Petrol pumps located near the Tamil Nadu and Karnataka borders have reported a surge in the number of Kerala-registered vehicles.
The Mahe Factor
The situation is worsened by the ‘Mahe Factor’. Vehicles travelling through the Union Territory of Mahe, where taxes are considerably lower, consistently refuel there, diverting substantial revenue away from the state government.
Alarming Rise of Fake Diesel Production
A more serious concern is the operation of syndicates manufacturing counterfeit diesel. Reports suggest these groups have set up clandestine mini-refineries to produce fake diesel using waste oil and various chemicals.
This spurious fuel is then sold at lower prices to specific sectors like fishermen, contractors, and quarry owners. Besides causing severe damage to vehicle engines, this criminal activity also poses a major environmental hazard.
Irreparable Loss to the Exchequer
Financial experts warn that this combination of factors is severely distorting fuel consumption data and inflicting major damage on the state’s finances. Authorities estimate that while actual consumption may not be dropping dramatically, the official sales figures—suppressed by smuggling and fake products—are costing the state exchequer crores of rupees in lost revenue.
Need for Immediate, Stringent Action
Experts are calling for strict monitoring and legal action to tackle the crisis. Government sources concede the necessity of addressing the tax disparity with neighbouring states, implementing rigorous checks at the borders to curb smuggling, and conducting regular raids on fake diesel manufacturers.
There is a growing public demand for immediate measures to safeguard the funds intended for social security schemes and to protect the state’s financial interests.
