State may slash Value-Added Tax on diesel, petrol today

Cheryl Sanders
October 12, 2017

The Uttarakhand government has made a decision to reduce the value added tax (VAT) on petrol and diesel by 2%, state Finance Minister Prakash Pant said on Wednesday.

In Maharashtra, petrol and diesel prices are trading near Rs 80 per litre and Rs 61 per litre by end of September 2017- which is at three year high. For instance in Belagavi - neighbouring state of Karnataka - the price of petrol was Rs 69.53 per litre and that of diesel was Rs 57.20 per litre on Wednesday.

The government had last month brought down excise duty on petrol and diesel by Rs 2 per litre.

The two BJP-ruled states announced the tax reduction on petrol and diesel after union finance minister Arun Jaitley recently wrot to all state governments nudging them to reduce taxes on petrol and diesel. This means the cumulative rate of current taxes (VAT+excise) amounts to a whopping 71 percent on diesel and 99 percent on petrol which was around a mere 15 percent at the start of 2014.

"The decision would put a burden of Rs 2,316 crore a year on the state exchequer". The proposals were drafted during the 22nd meeting of the GST Council in order to reduce cascading effect of taxes on petrol, diesel, jet fuel, natural gas and crude oil, as well as incentivise exploration and production of petroleum and oil and downstream sector. Gajkumar Mangave, district head of petrol pump operators, said, "Reduction in prices is of little help for the customers".

Gujarat and Maharashtra have already done the central leadership's bidding while Chhattisgarh has sought exemption on the ground that Value-Added Tax is already low in the state. Concessions for industrialists to continue post-GST: The tax breaks, incentives and concessions granted to the industrialists have ended after the advent of the GST regime in the country.

A reduction in the VAT imposed by state governments will further add to a loss in revenue for states, although the degree of impact for states would be lower given that VAT is charged as percentage of total fuel price which have been rising sharply. Given the huge difference between the maximum GST rates and current taxation rate on petrol and diesel, the government would require a cess of almost 50-75 percent to make up for lost revenue.

Despite reduction in Value-Added Tax, the prices are much higher than other states.

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