Uttar Pradesh may not reduce VAT on diesel and petrol unlike Gujarat and Maharashtra that announced tax cuts on both the fuels on Tuesday in response to the Centre’s call.
“There is no proposal at this juncture to reduce VAT on diesel and petrol in the state,” additional chief secretary, commercial tax, RK Tiwari told HT. He claimed that the tax in UP was already low vis-à-vis in most other states in the country.
Tiwari said the revenue growth with regard to diesel and petrol was as low as 4% in UP because of lower tax levy and added that any tax cuts were not possible as of now.
Having cut excise duty on diesel and petrol to give relief to consumers from the spiralling fuel prices, the central government had recently appealed to the states to reduce VAT on the two fuels for more relief to the people.
What is interesting, however, is that there is no fixed VAT prescribed for diesel and petrol in UP. The Akhilesh Yadav government in September 2015 delinked the two fuels from price fluctuations and thus protected its revenue share at a fix rate. Now, the state government gets Rs 9.11 per litre and Rs 16.32 per litre on sale of diesel and petrol irrespective of price fluctuations.
The Akhilesh government had devised the new formula taking a cue from West Bengal to offset the impact on the state’s tax collection due to reducing oil prices in the country.
{{/usCountry}}The Akhilesh government had devised the new formula taking a cue from West Bengal to offset the impact on the state’s tax collection due to reducing oil prices in the country.
{{/usCountry}}“Since the tax rate is directly related to the price, which means the higher or lower the price, the higher or lower the tax collection. UP was suffering huge revenue loss when the oil prices were falling sharply,” said an official. He added: “The then government fixed its revenue share as a way out.”
Ironically, the same formula is now backfiring on the state as the oil prices are increasing once again. “We could have earned more revenue now when the diesel and petrol prices are increasing had we not delinked the VAT from the price,” commercial tax commissioner, Mukesh Meshram said.
Read more: States have agreed to bring petrol, diesel under GST: Maharashtra FM
He, however, said there was no proposal either to return to the old tax mechanism.
According to sources, one more reason why UP might not decrease VAT on diesel and petrol was that the two commodities alone contributed to around 25% of its total commercial tax revenue. It collected around Rs 14,000 crore tax from the two fuels last year.
“The government has a major challenge in the form of Rs 36,000 crore loan waiver for farmers and reducing even Rs one or two per litre diesel and petrol prices may mean huge revenue loss to the exchequer,” said sources.