Taking a leaf from BJP-ruled states’ book, Samajwadi Party (SP) government in Uttar Pradesh is mulling an increase in the VAT on diesel and petrol to make up for revenue loss triggered by decreasing oil prices.
In what can be termed as an example of a ‘zero-sum’ economy, the recent trend of declining oil prices though has come as a big relief to inflation-hit people, it is adversely affecting the state exchequer. Since the VAT is charged on the total sale price of a product, less oil price means less tax to the government.
According to the data gathered by the state government under its ongoing exercise to explore possibility of increasing the VAT, decreased prices of diesel, petrol and crude oil are together causing a revenue loss of around Rs. 120 crore every month.
It is expected that the government’s collective loss by the end of the financial year in March would stand at a whopping over Rs. 556 crore.
“There has been a heavy decline in diesel, petrol and crude oil price during the current financial year vis-à-vis the previous financial year,” a government report says, adding, “And its impact on the revenue is evident from total tax collection for the month of December.”
The report reveals that while cheaper petrol and crude oil are depriving the government of Rs. 45 crore and Rs. 46 crore every month, respectively, the decline in diesel prices is causing a revenue loss to the exchequer to the tune of Rs. 28 crore.
“As oil is a major and the easiest source of state government’s revenue, decrease in prices is affecting the same in a big way. It is certainly causing consternation to the government, which is looking into the possibility of increasing VAT by 3-4%, as already done by some states,” pointed out a senior official requesting anonymity.
Sources said that the government has already gathered information from states ruled by the Bharatiya Janata Party (BJP), including Rajasthan, Madhya Pradesh and Haryana, all of which have increased VAT to offset the decreased oil price impact on the exchequer.
Rajasthan has increased VAT on petrol from 26% to 30% while MP has taken it from 27% to 31 %. Similarly, on diesel, Rajasthan has upped VAT from 18% to 22%, MP from 23% to 27% and Haryana from 9.24% to 12.07%. Haryana has, however, not yet revised VAT on petrol and it continued to be 21%.
“The VAT currently applicable on petrol and diesel in UP is 26.80% and 17.48%, respectively. Increase of 3-4%, as is the case in some other states, may compensate for revenue loss being caused by decreased oil prices,” said sources.