Days after the Centre cut excise duty on petrol and diesel by Rs 2 per litre, and Union Finance Minister Arun Jaitley wrote to chief ministers, urging states to similarly reduce tax on petroleum products, NDA-ruled Gujarat and Maharashtra and Congress-led Himachal Pradesh slashed VAT on petrol and diesel on Tuesday.
Gujarat and Himachal go to the polls later this year.
The Gujarat government was the first to announce the cut on value added tax (VAT), slashing it by 4 per cent each from the present 24-per cent tax on petrol and diesel. Post-midnight, petrol in the state will cost Rs 67.53 per litre, and diesel Rs 60.77 per litre.
Maharashtra, among states that had previously shot down the Centre’s suggestion of lowering taxes by contending that the state’s exchequer will not be able to bear the loss, effected a VAT cut of Rs 2 per litre on petrol and Re 1 per litre on diesel. After the new rates come into effect, petrol will cost Rs 75.58 per litre and diesel Rs 59.55 in Maharashtra.
Hours later, Himachal Pradesh announced reduction in VAT by 1 per cent each on petrol and diesel. “Currently the state levies 27-per cent VAT on petrol and 16 per cent on diesel. The new rates for petrol will be Rs 68.32 per litre (down from Rs 69.01). Diesel will cost Rs 56.32 (down from Rs 57.09) per litre,” a government spokesperson said.
While Gujarat Chief Minister Vijay Rupani said that the reduced VAT will cost the state exchequer Rs 2,316 crore, Deputy CM and Finance Minister Nitin Patel called it a “Diwali gift” for the people. Admitting that revenue generation will be affected, Patel said, “We are hoping that people from next-door states will buy fuel from Gujarat due to the cheaper rate. The increased sale will compensate losses to some extent.”
Rupani refused to call it a decision to woo people on the eve of elections.
Maharashtra Finance Minister Sudhir Mungantiwar admitted that the VAT rate cut will lead to a revenue loss of Rs 2,015 crore. The revenue projections had already been set back by Rs 1,052 crore after the Centre cut excise duty, and now the exchequer will have to bear a total revenue loss of Rs 3,067 crore, he said.
VAT on petrol in Mumbai, Thane and Navi Mumbai will come down from 26 to 24 per cent, while the change in rest of the state will be 25 per cent to 24 per cent. Tax on diesel has come down from 24 per cent to 23 per cent. The state also collects Rs 11 per litre and Rs 2 per litre as surcharge on petrol and diesel, respectively.
The Narendra Modi government had reduced excise duty on petrol and diesel by Rs 2 per litre on October 4. It was the first such cut by the Centre after raising it on 11 occasions since November 2014.
Petroleum Minister Dharmendra Pradhan had almost immediately urged state governments to cut VAT on these products by 5 per cent to pass on more relief to consumers.