Retail prices of petrol and diesel in Delhi surged on Tuesday after the city-state’s government steeply increased value-added tax (VAT), seeking to raise additional money to offset falling revenues and fund the fight against the coronavirus disease (Covid-19) , reducing the price gap between the two automobile fuels, state-run oil marketing companies (OMCs) said .
Petrol’s price at the pump increased by ₹1.67 per litre to ₹71.26 and diesel’s cost rose ₹7.10 to ₹69.39, according to Indian Oil Corp., India’s largest OMC and refiner.
Delhi’s Aam Aadmi Party (AAP) raised the VAT a day after lockdown restrictions were eased in the capital and elsewhere in India, allowing standalone stores to open, the self-employed like plumbers, electricians and domestic servants to return to work, and freer public movement, including the return of vehicular traffic. On Tuesday, the government imposed an additional tax of 70% on all varieties of liquor.
As the residents of the capital reeled under the double whammy, Delhi’s deputy chief minister and finance minister Manish Sisodia tweeted: “Life isn’t all about rainbows and sunshine. Tough times need Tough solutions - my learning as Finance Minister.”
The government almost doubled the levy on diesel to 30%, OMC executives said. The new VAT rate on petrol is also about 30%, they said. Earlier, Delhi used to levy a VAT 27% on petrol and 16.75% on diesel that attracted an additional ₹250 per kilolitre air ambience charge, official data showed.
{{/usCountry}}The government almost doubled the levy on diesel to 30%, OMC executives said. The new VAT rate on petrol is also about 30%, they said. Earlier, Delhi used to levy a VAT 27% on petrol and 16.75% on diesel that attracted an additional ₹250 per kilolitre air ambience charge, official data showed.
{{/usCountry}}Delhi is among the states that levies ad-valorem (Latin for “according to value”) duties on petrol and diesel to protect themselves against a steep fall in revenue because of a drop in international prices of crude or demand.
Retail prices of the fuels fluctuate in tandem with international oil markets.
If international prices jump, these states gain revenue proportionately, but they lose revenue when international oil rates fall. Revenues of states with ad-valorem duties on fuels have been hit badly as oil prices plummeted because of a demand slump resulting from the Covid-19 pandemic and lockdown.
The benchmark Brent crude price, that was around $50 per barrel two months ago, plummeted below $20 on April 21. It is currently hovering around $28 per barrel.
The Union government levies a specific excise duty on the two fuels. On March 14, it mopped up an additional ₹3 per litre from petrol and diesel each to fund Covid-19 relief measures, raising total central levies on petrol to ₹22.98 per litre and on diesel to ₹18.83 per litre. Despite the hikes in the central levies, the pump prices of petrol and diesel hadn’t been raised since mid-March because of the decline in crude prices.
Since March 16, state-run oil companies have abandoned the practice of daily revision of the two auto fuel rates, making up for present and potential inventory losses.
Pump prices of petrol and diesel are different in different states because of variations on sales tax or VAT rates and other local levies. States such as Tamil Nadu and Telengana have higher VAT rates, according to the oil ministry’s data-keeper Petroleum Planning and Analysis Cell (PPAC). Telangana charges 35.20% VAT on petrol and 27% on diesel. VAT rates in Tamil Nadu are 34% and 25% on petrol and diesel, respectively.
The Delhi government’s announcement of a hike VAT on the two fuels came a day after it levied a special corona fee on the sale of alcohol. From Tuesday, an additional tax of 70% of the maximum retail price on all categories of liquor sold is being imposed in the capital.
In an interview with Hindustan Times, deputy chief minister Sisodia had said losses being incurred by the Delhi government owing to the coronavirus lockdown had been “huge”.
“In April last year, the collection was ₹3,500 crore. This year, till April 30, we have collected only ₹400 crore. So, factoring in an anticipated growth of 10%, we are losing around 90% on GST [goods and services tax] and sales tax etc. On top of that, there are losses in excise etc. The government cannot disburse salaries with just 10% of the usual revenue,” he said.
The Congress party criticized the VAT hike.
“Citizens seeking relief in the form of cash and tax cuts being meted out this treatment is a shame. Nowhere in the world would any government have inflicted such hardships on their citizens. We demand immediate rollback of this hike,” Congress leader Ajay Maken said.
Associated Chambers of Commerce and Industry of India (Assocham) secretary general Deepak Sood said taxes were being raised at a time when demand should be stimulated with tax cuts.“If taxes are raised, demand would be further depressed, giving a jolt to the economy,” he said.