Maharashtra Joins Gujarat In Cutting Fuel Sales Tax
Maharashtra to reduce petrol by Rs 2, and diesel by Rs 1; Gujarat opts for 4% cut.
The Maharashtra government became the second state to reduce value-added tax on petrol and diesel, a week after India’s oil minister urged states to reduce the burden of rising fuel prices on the consumer.
“We've cut VAT on petrol by Rs 2, and on diesel by Rs 1,” State Finance Minister Sudhir Mungantiwar told BloombergQuint in a phone interview. This will cause a revenue loss of Rs 2,000 crore to the state exchequer, he said following a Cabinet meeting where the decision was taken.
Earlier in the day poll-bound Gujarat said it will reduce VAT on fuel by 4 percent. That may strip Rs 2,316 crore off the state’s exchequer, according to Chief Minister Vijay Rupani. The reduction in tax came just ahead of the state assembly polls due around the end of this year.
The decision by the two states to cut the value-added tax on fuel came after the Centre reduced the excise duty on petrol and diesel by Rs 2 per litre earlier this month to cushion the impact of rising crude oil rates. Oil Minister Dharmendra Pradhan had requested state governments to cut VAT by 5 percent in the interest of consumers, while the Union Finance Minister Arun Jaitley had written to states on the matter.
Later in the evening Himachal Pradesh, ruled by Congress, announced a 1 percent reduction in VAT.
The Centre deregulated fuel prices in 2014, allowing them to move as per market conditions. Prices were revised every 15 days. In June this year, it decided to revise fuel prices daily in some metros to ensure that the retail price reflected the international price accurately.
The price at which fuel is sold at the pumps includes the price of crude, customs duty, the excise duty, a value added tax levied by states, and a commission to dealers.
While crude oil prices nearly halved in the last three years, auto-fuel prices are hovering around a three-year high. That’s because the excise duty on petrol doubled to Rs 22.04 a litre during the period, and the levy quadrupled to Rs 17.9 per litre for diesel. That led to demands that the central government should either revise the daily mechanism or reduce its quota of taxes.
The government argued that 42 percent of what it gets from excise duty goes to the states and the rest towards funding welfare schemes and spending on railways, roads, infrastructure and sanitation.
Maharashtra currently levies 26 percent VAT on petrol and 24 percent on diesel in Mumbai, Thane and Navi Mumbai regions.
“The money that comes in through fuel taxes is spent on the betterment of farmers,” Mungatiwar said. Maharashtra announced a Rs 34,000-crore loan waiver and a slew of other welfare schemes targetted at farmers earlier this year.
The state finance minister added that the government is spending Rs 62,500 crore on farmers’ welfare this year, compared to Rs 21,500 crore spent back in 2011-12.