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BJP-ruled States of Gujarat and Maharashtra were the first to announce a reduction in taxes on petrol and diesel, heeding the Centre’s appeal to further reduce prices of petroleum products for customers.
Last week, the Centre cut the excise duty on petrol and diesel by ₹2 a litre and asked States to reduce the value-added tax component as well.
Gujarat announced a 4 per cent cut in VAT, bringing down the price of petrol by ₹2.93 a litre and that of diesel by ₹2.72/ litre. The move will cost the State exchequer ₹2,316 crore annually. The State currently levies 28.96 per cent VAT on petrol and diesel.
“The decision has been taken in the interest of the people and it should not be linked with the polls,” Gujarat Chief Minister Vijay Rupani told mediapersons while announcing the decision.
On October 4, the Centre had reduced the basic excise duty on the auto fuel by ₹2/litre to placate an angry public over escalating prices.
According to the Chief Minister, Gujarat annually earns ₹12,000 crore from VAT on auto fuels.
After the tax cut, the new price of petrol and diesel, applicable from midnight, in Gujarat will be ₹67.53 and ₹60.77 a litre, respectively.
With Maharashtra’s tax reduction of ₹2 per litre of diesel and ₹1 for petrol, from midnight, the selling price of petrol will be ₹75.58 a litre in Mumbai. The decision to reduce VAT will result in a loss of ₹3,067 crore a year — ₹940 crore on diesel, ₹1,075 crore on petrol and ₹1,052 crore due to the loss on central tax — for the State. Maharashtra earns more than ₹19,000 crore from VAT on diesel and petrol.
Expenditure cut-backAdditional Chief Secretary of Maharashtra (Finance) DK Jain told BusinessLine that the State government would be losing ₹3,067 crore revenue due to the reduction in VAT on petrol and diesel. The lost revenue would not be recovered in the form of any new tax.
The prudent thing to do is to reduce expenditure of the State government for which guidelines have been issued to all the departments. The exercise to reduce additional expenditure is already underway, he added.
While Madhya Pradesh and Karnataka are still discussing the possibility of cutting taxes on fuel, non-BJP-ruled States of Kerala and Odisha have objected to the Centre’s suggestion to lower VAT, terming it “unfavourable” to implement.
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