Diesel to cost 54p less in Delhi after VAT cut

Post the change in the VAT rate, diesel now costs Rs 50.41 per litre in the national capital as against Rs 50.94 per litre earlier

Diesel price has come down by 54 paise per litre in Delhi beginning Saturday after the Aam Admi Party (AAP) government slashed the value added tax (VAT) on the automobile fuel from 18.5 per cent to 15.75 per cent late Friday night.

After the change in the VAT rate, diesel now costs Rs 50.41 per litre in the national capital as against Rs 50.94 per liter earlier. Prices would be Rs 50.68 per litre in Faridabad and Rs 50.44 per litre in Gurgaon.

A Delhi government spokesperson confirmed the cut in VAT rates but said the government is yet to formally announce the decision. Indian Oil Corporation (IOC), the nation’s largest fuel retailer, announced the cut in diesel prices on its website. Delhi’s VAT rate at 18.5% before Friday’s cut was higher, when compared to 17.2% in Haryana, official data shows.

The decision to reduce VAT rates comes days after the second round of the 15-day Odd-Even drive to cut down pollution — which had hit the government’s VAT revenue. The scheme ended on April 30. The decision also comes amid the latest drive against diesel vehicles, triggered by Supreme Court’s decision to ban diesel-run cabs in the capital.

Chief Minister Arvind Kejriwal-led AAP government in Delhi had increased VAT on petrol from 25% to 27% and VAT levied on diesel from 16.6% to 18% four days after the first round of the Odd-Even road rationing drive ended on 15 January. That VAT increase had led to higher sales for dealers in neighbouring states.    

The move, which led to 53 paise per liter rise in diesel prices, was justified by the government, citing a decision taken at a meeting of the finance ministers of North Indian states to bring uniformity in tax rates. The Odd-Even drive had resulted in the government earning Rs 230 crore from VAT on diesel in January, around Rs 40 crore less than the average monthly collection.

While the taxes on oil sold to consumers forms a small part of total revenue, the state government still mops up an average VAT collection of Rs 2,500 crore annually. The government is targeting Rs 24,000 crore of total annual VAT collection. In the 2016-17 Budget, the AAP government had rationalised VAT rates by reducing the number of items attracting a higher levy and doing away with differential taxes for similar items.