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Excise move brings down VAT in Maharashtra, Rajasthan, Kerala
Union finance minister Nirmala Sitharaman on Saturday announced a record ₹8 per litre cut in excise duty on petrol and ₹6 a litre on diesel to rein in soaring fuel prices.
New Delhi: The value-added tax on auto fuels in Maharashtra, Rajasthan and Kerala reduced on Sunday following a cut in excise duty by the central government, even as some states cited additional strain on revenues.
Though the Maharashtra government issued a statement on Sunday saying it reduced the VAT by ₹2.08 a litre on petrol and ₹1.44 a litre on diesel, it later clarified that the reduction was reflected naturally because of the ad valorem system of taxation.
“The reduction in the VAT is the natural reduction reflected because of the reduction in the central excise. It will lead to annual losses of ₹2,500 crore to the state exchequer,” said Manoj Saunik, additional chief secretary, finance department.
Union finance minister Nirmala Sitharaman on Saturday announced a record ₹8 per litre cut in excise duty on petrol and ₹6 a litre on diesel to rein in soaring fuel prices owing to a surge in international crude oil prices amid Russia’s war on Ukraine.
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The minister also urged states to reduce VAT on petroleum products to give relief to the common man. “I wish to exhort all state governments, especially the states where reduction wasn’t done during the last round (November 2021), to also implement a similar cut and give relief to the common man,” she said.
Post the November 2021 reduction in excise duty on petrol by ₹5 per litre and that on diesel by ₹10 a litre, 25 states and union territories cut VAT to give further reprieve to consumers battered by record-high retail prices. States ruled by parties not affiliated to the ruling National Democratic Alliance (NDA) at the Centre, such as Maharashtra, Andhra Pradesh and West Bengal, did not do so.
On Saturday, the Left Democratic Front government in Kerala promptly announced a cut in the state tax on the prices of petrol and diesel by ₹2.41 and ₹1.36 per litre, respectively.
Rajasthan chief minister Ashok Gehlot also said the state government will reduce VAT by ₹2.48 per litre on petrol and ₹1.16 per litre on diesel.
However, the Tamil Nadu government led by Dravida Munnetra Kazhagam said it was neither fair nor reasonable to expect states to reduce taxes.
The Centre never consulted states when it increased taxes and Tamil Nadu was already incurring a loss of over ₹1,000 crore due to the earlier tax cut in November last year, state finance minister Palanivel Thiaga Rajan said.
Despite the tax reduction announced by the Centre on Saturday, the rates were still high compared to 2014, he pointed out.
“The Union government’s levies on petrol have gone up substantially in the past seven years. Though the revenue to the Centre has increased manifold, there has not been a matching increase in the revenues to states,” the Tamil Nadu minister said. “This is because the Union government has increased the cess and surcharge on petrol and diesel while reducing the basic excise duty that is shareable with the states.”
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Tamil Nadu’s main opposition All India Anna Dravida Munnetra Kazhagam urged the ruling DMK to implement its poll promise of reducing prices of petroleum products. The Bharatiya Janata Party, an ally of AIADMK, gave a “72-hour” ultimatum to the DMK to implement its poll promise on cutting fuel prices.
Bihar chief minister Nitish Kumar hinted about the possibility of a cut in fuel VAT. “We will discuss the issue. Last time (in November 2021) we had cut down the tax. I had already said that we will reconsider it once the Centre announced the relief. Now that the Centre has done it, we will discuss it,” Kumar told reporters after a meeting with Janata Dal (United) workers in the party office.
In Madhya Pradesh, Congress leader Kamal Nath demanded that the BJP government reduce VAT on petroleum products to further bring down rates. In Uttar Pradesh, Bahujan Samaj Party (BSP) chief Mayawati said it was the duty of states to immediately announce a cut in VAT on fuel.
In BJP-ruled Karnataka, chief minister Basavaraj Bommai said his government will consider a further cut in fuel tax. “The decision (Centre’s) has come on Saturday night. Let’s see, we will consider it,” Bommai told reporters.
The BJP government in Goa led by chief minister Pramod Sawant is unlikely to further reduce the VAT on petrol and diesel, with an official familiar with the development saying further reduction “might hurt the economy”.
Goa levies 26% VAT on petrol and 22% on diesel.
In West Bengal, the ruling Trinamool Congress said the state will cut taxes once the Centre lifts the “economic blockade” and releases the funds due to the state.
The price of petrol on Sunday was slashed by ₹8.69 a litre and that of diesel by ₹7.05 per litre following the government decision to cut excise duty on auto fuels.
Petroleum minister Hardeep Singh Puri welcomed the government’s move. “I want to highlight the fact despite this second reduction in central excise, price of petrol & diesel in states like Maharashtra, Rajasthan, West Bengal, Tamil Nadu, Andhra Pradesh, Jharkhand & Kerala remain around ₹10-15 higher than in BJP-ruled states,” he said. “This (high prices in non-BJP ruled states) is due to the refusal of their respective state governments to reduce VAT. It is time for these states to wake up and reduce VAT to provide relief to their consumers.”
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Rates differ from state to state depending on the incidence of local taxes such as VAT. Andhra Pradesh has the highest VAT on petrol and diesel in the country, followed by Rajasthan and BJP-ruled Madhya Pradesh.
Experts have said there are some indirect implications on states’ revenues even when the Centre reduces non-sharable excise components because the VAT charged by states on petrol and diesel is ad valorem. Accordingly, the VAT on petrol in Delhi (including VAT on dealers’ commission) on Sunday came down to ₹15.71 per litre from ₹17.13 before the tax cut, the Indian Oil Corporation (IOC) data showed. Similarly, diesel VAT in Delhi went down from ₹14.12 per litre to ₹13.11 a litre.
(With agency inputs)
