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Photo: Ramesh Pathania/Mint
Photo: Ramesh Pathania/Mint

Uttar Pradesh hikes VAT on petrol, diesel; 15th state to do so

  • Delhi, West Bengal, Maharashtra, Karnataka, Tripura, Goa, Rajasthan, Meghalaya, Assam, Haryana have also raised prices
  • States across India's political spectrum are taking difficult decisions to shore up revenues, from increasing VAT on fuel to imposing liquor cess

NEW DELHI: The Bharatiya Janata Party-led Uttar Pradesh government on Wednesday raised petrol and diesel prices by increasing value-added tax (VAT) on transportation fuel and becoming the15th state to do so.

The state headed by chief minister Yogi Adityanath announced that the VAT on petrol and diesel will be increased by Rs2 per litre and Rs1 per litre, respectively, effective from Wednesday midnight.

This comes after the government on Tuesday raised the excise duty on petrol by a steep Rs10 per litre and on diesel by Rs13 petrol litre to mobilise revenue collections. The sharp hike in prices comes despite extremely low global crude oil prices, with Brent crude hitting a 21-year low, and US oil futures slumping into negative for the first time in history.

Other states that have raised petrol and diesel prices are--Delhi, West Bengal, Maharashtra, Karnataka, Tripura, Goa, Rajasthan, Meghalaya, Assam, Nagaland, Haryana, Tamil Nadu and Arunachal Pradesh.

As the world’ largest lockdown bills pile up, state governments across India's political spectrum are taking difficult decisions to shore up revenues, ranging from increasing VAT on fuel to introducing liquor cess.

The global crude oil prices have recovered, with benchmark Brent hitting $31.73 per barrel on Monday. The West Texas Intermediate (WTI) traded at $25.46 per barrel. Oil prices had touched an all-time high of $147 per barrel in July 2008.

The cost of the Indian basket of crude, which represents the average of Oman, Dubai, and Brent crude, averaged $56.43 and $69.88 per barrel in FY18 and FY19, respectively and $19.90 in April, according to data from the Petroleum Planning and Analysis Cell. The price was $25.54 a barrel on 5 May. Every dollar per barrel drop in crude prices reduces India’s oil import bill by Rs10,700 crore on an annualized basis. Retail prices of petrol and diesel in India track global prices, not crude, but are broadly linked to oil price trends.

“The quantum of hike in duties by the GoI is unprecedented and is aimed at generating additional revenues at a time when economic activity has been severely impacted by lockdowns owing to Covid-19. Additionally, this is the second time in the last two months that the GoI has hiked excise duty following the increase of 3/litre for both diesel and petrol on March 14," ICRA said in a statement.

This comes in the backdrop of states’ reaching their borrowing limits, dwindling fund transfers from the Centre and limited avenues to raise taxes post the introduction of Goods and Service Tax (GST).

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