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A worker holds a nozzle to pump petrol into a vehicle  (REUTERS)
A worker holds a nozzle to pump petrol into a vehicle (REUTERS)

As prices skyrocket, some states cut taxes on petrol and diesel

  • The current petrol price break-up in Delhi shows that 60% of the retail price is excise duty and value-added tax (VAT)
  • Reserve Bank of India governor Shaktikanta Das has called for reduced indirect taxes on petrol and diesel to contain the fuel prices at a reasonable level

Amid rising fuel prices and subsequent uproar, five states have decided to cut down taxes on petrol, diesel and other motor spirits to provide relief to customers.

These are the states that have reduced taxes

Nagaland: The Nagaland government on Monday cut the rate of tax on petrol and other motor spirits have been reduced from 29.80% to 25% per litre or from 18.26 to 16.04 per litre (whichever is higher).

The tax rate for diesel has been reduced from 11.08 to 10.51 per litre or 17.50% to 16.50% per litre (whichever is higher).

In effect, the petrol price has been reduced by 2.22 per litre and diesel by 57 paise per litre.

West Bengal: The state announced a reduction of tax by Re 1 per litre on petrol and diesel on Monday.

"The Centre earns 32.90 per litre in taxes from petrol, while the state gets 18.46 only. In case of diesel, the central government's earning is 31.80 per litre as against 12.77 for the state," West Bengal Finance Minister Amit Mitra said.

Rajasthan: VAT on fuel was reduced in Rajasthan from 38% to 36% after petrol prices breached 100-mark in Ganganagar and Hanumangarh districts.

Assam: The state withdrew the additional tax of 5 a litre imposed to fund its fight against the Covid-19 pandemic.

Meghalaya: The government introduced the biggest relief on petrol and diesel price of 7.4 and 7.1 per litre respectively. Meghalaya reduced VAT on fuel to 20% from 31.62%.

Prices riding on tax hike

On the other hand, despite rates touching record high, the central government has refused to reduce excise duty. While part of the reason for the spike is recovering crude oil prices, the elevated taxes had kept fuel rates up in India even though crude prices had crashed and stayed low for much of 2020.

The current petrol price break-up in Delhi shows that 60% of the retail price is excise duty and value-added tax (VAT). Just about 40% is the price of crude oil.

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Reserve Bank of India governor Shaktikanta Das has called for reduced indirect taxes on petrol and diesel to contain the fuel prices at a reasonable level.

"Proactive supply-side measures, particularly in enabling a calibrated unwinding of high indirect taxes on petrol and diesel – in a co-ordinated manner by centre and states – are critical to contain a further build-up of cost-pressures in the economy," he said.

Centre-state cooperation

Commenting on the hike in fuel price, finance minister Nirmala Sitharaman said on Saturday: "It's a vexatious issue in which no answer except for fall in fuel price will convince anyone. It is also a fact that (global) crude rate has been recovering from November."

To bring some respite to the common man, finance minister mentioned, "Both Centre and state should talk to bring down retail fuel price at a reasonable level for consumers."



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