Cut VAT on petrol, diesel by 5% to benefit consumers: Centre to states

Petroleum Minister Dharmendra Pradhan on Wednesday urged the state governments to cut value added tax (VAT) on petrol and diesel by at least 5 per cent to bring further relief to consumers on fuel pricing. 

This comes a day aftef the finance ministry decided to cut excise duty Rs 2 per litre on both branded and unbranded petrol and diesel. "Prime Minister Narendra Modi has taken the risk of losing huge money for the benefit of the people. Now, state governments should take up the responsibility and cut VAT on petrol and diesel by at least 5 per cent," Pradhan said addressing the media in Delhi. 

Pushed by the reduction in excise duty, petrol prices were seen Rs 2.50 per litre and diesel by Rs 2.35 per litre down in Delhi on Wednesday. Petrol was seen at Rs 68.38 per litre down from two-year high at Rs 70.88 per litre on Tuesday. Meanwhile, from and all-time high rate of Rs 59.14 per litre diesel prices were seen at Rs 56.89 per litre on Wednesday. 

"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, today's 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. 

After Tuesday's cut, excise duty on petrol has come down to Rs 19.48 per litre and diesel to Rs 15.33 per litre. 

States levy VAT in the range of 25-40 per cent on petrol and between 15-25 per cent on diesel. While Kerala increased VAT on petrol to 34 per cent from 26 per cent, Mahrashtra increased to 47 per cent from 27 per cent and Delhi to 27 per cent from 20 per cent with in a year.

Interestingly, in past three months, the FOB price of petrol and diesel in international market increased by 20 per cent, while domestic petrol and diesel increased by only 8 per cent. When asked whether it will lead to an under recovery for oil marketing companies, Pradhan indicated that it will not have any impact on OMCs. 

The major reasons for increase of product prices is due to the increase in international prices due to the Hurricanes Harvey and Irma in the US, following which 13 per cent of the US refinery capacity was shut down. 

Pradhan also reiterated his demand on inclusion of petroleum products under the GST ambit.