Centre urges states to cut VAT on petrol, diesel by 5%
New Delhi: Oil minister Dharmendra Pradhan on Wednesday urged state governments to reduce value added tax (VAT) on petrol and diesel by 5% to further ease retail price of the auto fuel after the central government cut excise duty on these by Rs2/litre a day ago.
“Finance minister (Arun Jaitley) is expected to write to chief ministers of all states urging them to reduce VAT on petrol and diesel. It is the responsibility of states to reduce VAT. Every state has different VAT rates on fuel and if each of them reduce by 5%, consumers will benefit,” said Pradhan. Many states levy VAT on auto fuel at 24-26%, said the minister.
Pradhan also said that raising excise duty on fuel during the low global oil price era also involved a responsibility to bring it down when necessary. The net impact of Tuesday’s excise duty cut effective from Wednesday on prices is a Rs2.5/litre reduction on petrol and Rs2.35/litre reduction on diesel in Delhi, the minister said. Unlike the central government, states levy VAT as a percentage of the price, which leads to higher tax burden when prices go up.
Pradhan said the Centre sacrificed Rs26,000 crore in revenue in the duty cut (the full year impact of the duty cut.) For the rest of the financial year, the impact is Rs13,000 crore.
News agency PTI reported that the central government raised excise duty by Rs11.77 per litre on petrol and Rs13.47 a litre on diesel between November 2014 and January 2016 to take away gains arising from plummeting international oil rates.
Oil ministry said in a statement that the decision to cut excise duty was taken in view of coming agricultural season—harvesting of Kharif crops and sowing of Rabi crops, besides consumer interest in general. “The government stands committed to take all necessary steps to protect the well being of consumers,” said the statement.