You will have to pay Rs2 more for every litre of petrol or diesel from today, with the cash-strapped state government announcing an out-of-turn hike in value added tax (VAT) on Wednesday. While VAT on liquor and cigarettes has been hiked by 5%, the tax has been hiked by 1.2% for gold and silver jewellery.
State finance minister Sudhir Mungantiwar, who announced the decision, said the proposals are expected to generate a revenue of Rs1,600 crore in the coming six months, before the next budget session in 2016.
VAT on petrol and diesel in the city is 26% and 24% respectively, with a surcharge of Re1 a litre. In addition to this, motorists from the city will have to pay Rs2 more for each litre. In 25 other cities in the state, there will be no significant hike, as the state Cabinet has done away with the local body tax (LBT) on petrol and diesel in these areas. Rural areas that are not governed by municipal corporations will, however, see a flat rise of Rs2 a litre in petrol and diesel prices.
The government’s decision of 5% hike in VAT for liquor will take the overall taxation on alcohol to 26%.
The minister defended the hike cleared in the state Cabinet, on grounds that the drop in diesel and petrol prices last year by Rs3.43-Rs2.11 a litre had led to a fall in the revenue generated by VAT. “The loss suffered by the state in a year owing to the reduction in prices of diesel and petrol amounts to Rs1,800 crore. The hike in VAT will help us make up for it, with an expected revenue generation of Rs1,600 crore in six months. The hike will only be for six months and the further course of action will be decided in March next year,” said Mungantiwar.
The decision to increase the taxes six months ahead of the budget session of the state legislature has been taken as the state exchequer is in a sorry state with a revenue deficit – when expenditure exceeds earnings -- of more than Rs7,500 crore. While the state has pointed to drought mitigation efforts and ongoing agrarian crisis for the increased spending, its populist decisions such as the scrapping of local body tax (LBT) and road toll has also come at a heavy cost. Also, the revenue targets have not been met. The ongoing burden of the agrarian crisis for the state works out to Rs3,258 crore, while the scrapping of LBT cost Rs2,091 crore and road toll another Rs709 crore.
The state government was earlier mulling levying a separate farm surcharge to raise resources to tackle the agrarian crisis, but ruled against it. “We ruled against such a surcharge as industry as well as the service sector has slowed down. These taxes will not burden the common man, but a section of society that can afford it,” he said.
The annual revenue earned by the government from the tax on liquor is Rs880 crore, while Rs125 crore is earned from gold, diamond and jewellery items.
The Federation of All Maharashtra Petroleum Dealers’ Association has opposed the state government’s decision. Uday Lodh, president of the federation, said, “The huge difference in prices will lead to a huge loss for dealers of border districts. Diesel in Goa now will be cheaper by Rs5 a litre.”