After excise cut, Pradhan urges states to reduce VAT on fuels

Finance Minister Arun Jaitley will soon write to all state chief ministers urging them to cut sales tax or value added tax (VAT) on petrol and diesel, Union Petroleum Minister Dharmendra Pradhan said on Wednesday.

"We have proactively cut excise duty. Now it is the turn of states to reduce VAT," he said.

Pradhan did not, of course, mention that the Rs2 cut in Central excise on petrol and diesel effective from Wednesday came after nine consecutive hikes by the current government that raised the price of petrol by almost Rs12 and of diesel by Rs13.5 even as global crude prices were in free fall.

The retail prices of petrol and diesel in Delhi had risen to Rs 70.83 a litre and Rs 59.07 per litre, respectively as on 2 October – the highest since November 2014 (See: Petrol, diesel to cost less as centre cuts excise duty by Rs2 per litre).

Noting that states impose VAT ranging from 26 per cent to 38 per cent on fuel, the minister said, "I urge all states to reduce VAT by 5 per cent in line with the cut in central excise duty to provide farmers and consumers with one more slab of relief."

While states ruled by the Bharatiya Janata Party are expected to oblige at least to some extent, it is unlikely that non-BJP states like West Bengal, Punjab or Tamil Nadu will take the hint.

Pradhan said the Centre has sacrificed Rs26,000 crore in revenue by the cut in excise duty. "States are the biggest beneficiaries. They get all of the VAT collection plus they also get 42 per cent of the central excise collections. The amount remaining with the Centre is used to finance centrally sponsored schemes in states," he said.

Under the daily price adjustment regime for transport fuels, petrol in Delhi on Wednesday was costing Rs68.38 a litre and diesel Rs56.89.

Announcing the excise cut, the government said the rise in the prices of petrol and diesel is also reflected in WPI, or wholesale, inflation, which has increased to 3.24 per cent for the month of August 2017, as compared to 1.88 per cent for the month of July 2017, and which prompted the government to act swiftly.

Despite demands from industry, petroleum products, as well as natural gas, do not come under the Goods and Services Tax (GST) regime. These continue to be taxed as per the old VAT regime.