A week after Petroleum Minister Dharmendra Pradhan urged the state governments to cut the value added tax or VAT on petrol and diesel, two BJP-ruled states Gujarat and Maharashtra have today slashed the VAT on fuel.
The Gujarat government on Tuesday announced a 4 per cent cut in VAT on petrol and diesel, effective from midnight, to bring down fuel prices in the state.
The Maharashtra government reduced petrol and diesel prices by Rs 2 and Rs 1 respectively.
Making the announcement, Chief Minister Vijay Rupani told the media that with the reduction in VAT, petrol price
will be reduced by Rs 2.93 a litre and that of diesel by Rs 2.72 a litre.
The move comes after Maharashtra had increased to 47 per cent from 27 per cent with in a year.
Hours after the Gujarat government announced the tax cut, Devendra Fadnavis government also came out with tax reduction on fuel.
Making the announcement about VAT reduction on petrol and diesel today, Finance Minister Sudhir Mungantiwar also termed it as a "Diwali gift" to people of the state.
Loss to Gujarat, Maharashtra
Slashing VAT would put a burden of Rs 2,316 crore a year on Gujarat's exchequer. Gujarat annually earns Rs 12,000 crore by way of VAT on auto fuels.
Maharashtra, on the other hand, will lose an annual revenue loss of Rs 2,000 crore to the state exchequer.
"The government is ready to bear the additional financial burden despite Maharashtra's economy not being in a good shape," Sudhir Mungantiwar said.
Petrol, diesel price cut
Last week the finance ministry decided to cut excise duty Rs 2 per litre on both branded and unbranded petrol and diesel.
Terming it a 'risk for the benefit of the people', Dharmendra Pradhan told state to take up the responsibility and cut VAT on petrol and diesel by at least 5 per cent.
"Finance ministry has already written to the state governments seeking a cut on VAT. Because of a cut in excise duty and drop in international prices, fuel prices have turned advantageous for consumers," he said. Pradhan added that out of excise duty collection, 42 per cent is transferred to state governments.
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States levy VAT in the range of 25-40 per cent on petrol and between 15-25 per cent on diesel. While Kerala had increased VAT on petrol to 34 per cent from 26 per cent, Mahrashtra had increased to 47 per cent from 27 per cent and Delhi to 27 per cent from 20 per cent with in a year.
Petrol and diesel prices have gone through the roof ever since the central government announced daily revision of fuel prices.
On July 1, the prices of petrol and diesel in the national capital were Rs 63.09 and Rs 53.33 per litre respectively. Today the prices are Rs 68.45 and Rs 57.00 per litre respectively.
Excise duty on petrol was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre ever since Prime Minister Narendra Modi-led BJP government came to power in 2014.
Bring petrol under GST ambit
Last month, Pradhan said he has requested the Ministry of Finance to bring petroleum products under the ambit of Goods and Services Tax (GST) in the interest of consumers.
Justifying the move, he said there has to be a “uniform tax mechanism” all over the country.
“This is the proposal of the Ministry of Petroleum. We have appealed to all the states and finance ministry (to bring petroleum items under GST). Looking into the consumer interest, there must be tax rationalisation. GST is a well-thought mechanism by the Government of India and the states, they developed the GST Council...
“There are two kinds of taxes (on petroleum products). One is the central excise and the other one is state VAT. That is the reason we are expecting uniform tax mechanism from the industry point of view,” Pradhan said. (Click here to read the full report
On Tuesday, Maharashtra finance minister said states had agreed to bring petrol and diesel under the ambit of Goods and Services Tax (GST). "All the states have given the permission to bring petrol and diesel under GST. But we have to wait for the right time," Mungantiwar said.