Targeting Opposition-ruled States for high fuel prices, Prime Minister Narendra Modi on Wednesday asked them to reduce value added tax (VAT) on petrol and diesel as it amounts to “injustice to the people”.

“For some reason, Maharashtra, West Bengal, Telangana, Andhra Pradesh, Tamil Nadu, Kerala and Jharkhand did not agree to slash VAT on fuel. The burden of high prices continued to be on the citizen,” said the PM in a virtual interaction with chief ministers. These States that have not cut VAT have earned an extra ₹11,945 crore.

Excise cut

The Centre had, on November 3, 2021 reduced the excise duty on petrol by ₹5 a litre and on diesel by ₹10 a litre. Government data show the revenue foregone by the Centre due to the cut is approximately ₹8,700 crore per month and ₹1-lakh crore annually. Following this step, all BJP-ruled States and a few others reduced their VAT.

On average, the States cut VAT rates by ₹5 per litre for diesel and ₹6 for petrol. Between November 2021 and March 2022, the States that cut VAT on fuel have in total foregone revenue of ₹15,969 crore. Of this, ₹11,398 crore has been foregone by the BJP States alone.

The PM underlined that the effect has not been universally passed on to the common citizen because some States did not cut VAT. The petrol price across these Opposition-ruled States is hovering at ₹115-₹120 per litre. As against this, the BJP-ruled States, which had reduced tax, have seen petrol prices hover at ₹102-106 over the last few days.

Opposition disputes

The Congress disputed the data. Party spokesperson Pawan Khera said, “The PM expects the States to reduce VAT on fuel without first giving an account of the central excise through which the Centre has earned ₹27-lakh crore in the last eight years.”

Kerala Finance Minister KN Balagopal said the amount collected by the Centre as additional cess and surcharge is passed on to the States. He said Kerala had not increased VAT on petrol and diesel since 2013.

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