Gujarat, Maharashtra, Himachal Pradesh cut VAT of petrol and diesel, put pressure on other states to follow suit
Mumbai/Ahmedabad/New Delhi: A bipartisan consensus emerged on Tuesday after Gujarat, Maharashtra and Himachal Pradesh cut value added tax (VAT) on petrol and diesel in tandem with the central government’s decision last week to reduce excise duty, stoking expectations that the inclusion of petroleum products in the goods and service tax (GST) may happen sooner.
The actions of the three state governments will put pressure on other states to cut VAT on petrol and diesel; it also signalled the possibility of coordinated responses even on products outside GST—in this case it could have a salutary effect on retail inflation.
Bharatiya Janata Party (BJP)-ruled Gujarat reduced VAT on petrol and diesel by 4%, becoming the first state to give relief to consumers from a recent surge in oil prices. The decision announced by chief minister Vijay Rupani in Gandhinagar will make petrol cheaper in the state by Rs2.93 and diesel by Rs2.72 a litre from Wednesday. Gujarat levied 28.96% VAT on petrol and diesel prior to the tax cut.
The Maharashtra government, also led by BJP, followed suit without delay. The state reduced VAT, resulting in a price reduction on petrol by Rs.2 and diesel by Rs.1.
Later in the evening Himachal Pradesh, ruled by Congress, announced a 1% reduction in VAT.
Maharashtra finance minister Sudhir Mungantiwar said on Tuesday that states are in principle on board with the idea of bringing petroleum products under GST although a decision has to be taken by the GST Council. Oil minister Dharmendra Pradhan too has been pitching for inclusion of petrol, diesel, jet fuel, natural gas and crude oil in the GST regime as it would ease the tax burden of oil and gas companies which at present are subjected to two streams of taxation, GST and VAT.
An official of the GST Council, when contacted, said on condition of anonymity that a proposal to include petroleum products in GST has not been discussed at the Council as yet. A state FM confirmed as much saying there was “no such proposal".
Mungantiwar said the new rates on petrol and diesel will be effective from Wednesday. He said the reduction of VAT will cost the exchequer Rs. 940 crore from petrol sales and Rs.1,075 crore from diesel sales. The state would try to make up the revenue loss by adopting austerity measures, he said.
The central government cut excise duty on petrol and diesel by Rs2 last week, the first tax cut on fuel by the current government, to tame rising inflation. The recent spike in autofuel price, induced by refinery shutdowns in the US owing to violent weather, had an impact on the cost of living. Consumer price index-based inflation accelerated for the second consecutive month by 3.36% in August from 2.36% in July.
Pradhan said on Tuesday that the GST Council is the best example of a federal institution dealing with central-state issues and that a decision on inclusion of petroleum products will be taken by consensus. “The responsibility of people’s welfare rests equally with union and state governments," said Pradhan.