The state government's move to hike value added tax (VAT) on diesel by 4% to 27% will hit the sales as transporters will now prefer neighbouring states where diesel prices are lower.
Value added tax in Maharashtra, Gujarat and UP is lower than that of Madhya Pradesh and long-distance truckers generally fill the tanks where diesel is cheaper. "This move to hike value added tax on diesel to 27% will definitely hit sales, especially in the bordering districts," said MP Federation of Petroleum Dealers secretary Sudhir Arien.
The BJP government on Tuesday raised value added tax on petrol and diesel by 4%, offsetting the Rs 2 per litre cut in prices by oil companies on Monday night. The price hike will become effective once the notification is issued by the government.
VAT on diesel and petrol account for about 37% of state commercial tax department revenues. Last year, the commercial department collected about Rs 7,400 crore as VAT on the petroleum products. However, the hike in VAT on diesel might not result in any substantial hike in revenues due to reduced sales. Government officials, however, are optimistic.
"We expect additional monthly revenue of `20 crore from petrol and over `50 crore from diesel," a commercial tax department official said. Ironically, the state government while reducing the VAT on cigarettes from 27% to 13% has acknowledged that high VAT has hit sales.
State urban administration and development minister Kailash Vijayvargiya had said that tax evasion had increased after VAT on cigarette was hiked to 27% and revenue had come down. "As VAT increases, traders start bringing in goods from neighbouring states where the tax is lower," he said.
He, however, declined to answer a query on whether the same would not apply on diesel sales. State finance minister Jayant Malaiya justified the hike in VAT on diesel and petrol by saying that MP is not a manufacturing hub and has to depend on VAT on petroleum products for revenues.
Sources said that the government had suffered a loss of more than Rs 550 crore due to fall in prices of petroleum products in the past five months. The government now expects to add around Rs 800 crore every year from additional revenues.