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Amid buzz over VAT relief on fuel, UP government may have to assess financial situation
Uttar Pradesh chief minister Yogi Adityanath chairs high level meeting to discuss VAT, no specific directive issued
The Uttar Pradesh (UP) government would have to weigh its options and evaluate the prevailing financial situation if it considers reviewing the rate of value added tax (VAT) on petrol and diesel in order to give any such relief in fuel prices to consumers before the 2022 assembly elections, experts have said.
Although chief minister Yogi Adityanath, who presided over a high-level meeting to discuss the rate of VAT in the backdrop of the consistent increase in prices of petrol and diesel on Thursday, did not give any specific directives on the issue, his move to discuss the same has triggered a debate.
“Yes, chief minister Yogi Adityanath convened a meeting to discuss the issue on Thursday. He has, however, not given any instructions in this regard after the meeting,” said a senior officer aware of the discussions there.
The Uttar Pradesh government imposes VAT of 26.80% or ₹18.74 per litre (whichever is higher) on petrol. It imposes VAT of 17.48% or ₹10.41 per litre (whichever is higher) on diesel.
UP finance minister Suresh Khanna, quoting the VAT in Uttar Pradesh via-a-vis other states, had recently asserted that the rate of tax was higher than Uttar Pradesh’s in many other states.
Those aware of the prevailing situation on the financial front feel the timing of the decision on the issue would be crucial if the state government goes ahead with the move in the coming weeks.
“If the state government goes ahead with the move to bring down the rate of VAT, it will certainly give some relief to the people. The timing may, however, be dictated by electoral compulsions. The state government has been claiming an increase in its revenue in recent months. This may give some elbow room to the state government to provide relief to the people,” said professor Yashvir Tyagi, former head of the economics department at Lucknow University.
The state government earned VAT of ₹2200.40 crore, about 106% of the target of ₹2060.43 crore for September 2021 against ₹1653 crore earned in the same month in 2020. It earned ₹12137.27 crore as VAT in the first six months of 2021-2022, only 39% of the annual target of VAT collection of ₹31,100 crore. The state government’s likely VAT collection in 2021-2022 therefore shows that any cut in the tax rate will directly affect UP’s finances in the coming months.
“Yes, the state government is bound to lose substantive revenue by giving relief to the people in VAT in the coming months. The state government will have to weigh all the options carefully before taking a call on the issue. It will be better if the Centre also complements the Uttar Pradesh’s move by reducing the excise duty on them to provide some relief to the people,” said Tyagi.
