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NEW DELHI: The move to get states to cut value added tax (VAT) on petrol and diesel seems to have stalled after Gujarat, Maharashtra, Himachal Pradesh, Madhya Pradesh and Uttarakhand reduced the tax last month to ease the burden of rising global oil prices on consumers.
The five states pruned VAT on fuels after the Centre early last month shifted the onus on state governments by slashing excise duty on petrol and diesel by Rs 2 per litre to shield consumers from nearly 29% rise in oil prices and tame inflation. “We have requested all the states (to cut VAT) and I am sure that all the states will revisit their tax structure. Consumer interest is top priority. Just like excise duty has been cut by the Centre keeping consumer interest in mind, states will also follow suit,” oil minister Dharmendra Pradhan had said shortly after the excise duty reduction. Finance minister Arun Jaitley too had urged states to reduce VAT on petroleum products.
With oil prices hovering around $60 a barrel and prospects of domestic prices rising, the need to get states to cut VAT on fuels has gathered urgency. But barring the five states — four of them ruled by the BJP — other states have been reluctant to heed the Centre’s plea. Bihar, where the BJP is part of the government in alliance with Nitish Kumar’s JD(U), and Left-ruled Kerala have so far declined to cut VAT. Fear of losing revenue is a key concern among states. VAT on petrol and diesel forms a substantial chunk of revenue for most state governments.
VAT collection from fuels has risen more than 16% from Rs 1,42,848 crore in 2015-16 to Rs 1,66, 378 crore in 2016-17. During the same period, however, excise mop up from fuels has risen over 35% from Rs 1,78,591 crore to Rs 2,42,691 crore, according to data from the oil ministry’s Petroleum Planing and Analysis Cell.
In addition, the Centre also collects royalty, cess and dividend in addition to excise from the oil industry. In the first quarter of 2017-18, states collected Rs 43,404 crore from sales tax or VAT.
Consumers have been steadily paying more since August. Till October 3, when growing public anger against high taxes forced the government to cut excise duty, petrol price had jumped by Rs 7.8 per litre and diesel by Rs 5.7 to hit an all-time high in Delhi.
The government had cumulatively hiked excise on petrol by Rs 11.77 per litre and on diesel Rs 13.47 a litre between November 2014 and January 2016 to soak up part of the benefit of tumbling global oil prices. So, if oil prices continue to rise further, consumers will still want more tax cuts.
Now, a move to include petroleum products under GST has gathered momentum.
While it is a long way off, several states including Congress-ruled ones are keen to get petroleum products under the new tax reform measure.