VAT hike: Kejriwal attempted a Jaitley to shore up tax collections

Delhi govt raised VAT on petrol from present 20% to 25% and on diesel from 12.5% to 16.6% on July 16

The Bharatiya Janata Party (BJP) is now protesting against the Delhi government’s move to increase value added tax (VAT) on petrol and diesel. But Delhi Chief Minister Arvind Kejriwal’s move is not different from what Union Finance Minister Arun Jaitley did at the Centre a few months ago to shore up the Centre’s finances.

On Wednesday, the Delhi government raised VAT on petrol from 20 per cent to 25 per cent and diesel from 12.5 per cent to 16.6 per cent, effectively increasing petrol prices by Rs 2.78 a litre and diesel prices by Rs 1.83 a litre.

The increase nullified the potential savings for consumers from the Rs 2 a litre cut each in petrol and diesel rates announced by the oil marketing companies the same day.

The rate increase in both the automobile fuels translates into an additional VAT collection of Rs 548 crore for the Kejriwal-led Aam Admi Party (AAP) government on an annualised basis — roughly 2.6 per cent of Delhi’s total VAT collection of Rs 21,000 crore in the last financial year. While this percentage contribution might appear minor, it reveals the brilliance of the Delhi CM, a former Indian Revenue Service Officer.

A similar move by Jaitley last financial year — increasing excise duty on petrol and diesel rather than passing on the benefit of lower crude oil prices to consumers — created a massive Rs 58,000-crore chest of annual tax collection to reduce the Centre’s fiscal deficit. Jaitley increased excise duty thrice within seven weeks, between November 12, 2014, and January 2, 2015, benefiting from the nearly 60 per cent slump in crude oil prices during this period.

Kejriwal’s move serves another purpose —ending the price arbitrage that exists in fuels between Delhi and its neighbouring states that fuels black marketing and leakages.

A day after Delhi announced the revision in VAT rates for petrol and diesel, the BJP-led Haryana government also raised VAT on diesel from 11.5 per cent to 16.4 per cent. Simultaneously, in Punjab, where the BJP runs a coalition with the Shiromani Akali Dal, VAT rates on diesel were increased from 11.25 per cent to 13.4 per cent.

After the revisions, diesel prices have equalised at Rs 50 a litre across the three states.

That, however, has not deterred the opposition parties, including the BJP and the Congress, to train their guns on the AAP government in Delhi. The opposition is criticising the AAP for going back on its poll promise of slashing tax rates. Deputy CM Manish Sisodia had termed the Delhi Budget presented last month “tax-free”.