Shortly after Union Finance Minister Arun Jaitley announced a cut of Rs 2.5 per litre on fuel prices, the BJP-led government in Maharashtra on Thursday extended an additional cut of Rs 2.5 per litre for petrol consumers with immediate effect, bringing the total benefit to consumers to Rs 5 per litre. On the basis of reduction in prices announced, the estimated loss of income to the state’s exchequer will be Rs 1,800 crore.
Chief Minister Devendra Fadnavis, who announced the reduction in prices through his twitter handle, said: “This would give huge relief to common citizens. The net effect to the people in Maharashtra will be a reduced price of Rs 5 per litre (on petrol prices).”
Ahead of the festive season, sources said that the state government was mulling cutting tax on diesel by Rs 1 per litre. When contacted, Fadnavis said, “We are working on it.”
Asked about the loss to the exchequer, Additional Chief Secretary (Finance) U P S Madan said: “VAT collections on petrol will be impacted by Rs 940 crore due to reduction in state taxes, and Rs 310 crore owing to reduction in central excise. Reduction in central excise on diesel will cost Rs 550 crore.” In the event, the state announces another Rs 1 per litre cut on diesel, the overall loss of income to the state’s exchequer will rise to Rs 3,026 crore.
Retail prices of petrol and diesel have been rising consistently since mid-August. On Thursday, petrol prices in Mumbai had jumped another 14 paise to Rs 91.34 per litre, while diesel cost Rs 80.10 per litre.
In the build-up to the elections in three key BJP-ruled states – Rajasthan, Madhya Pradesh and Chhattisgarh – where the party appears to be facing some anti-incumbency, the Centre on Thursday cut central excise on fuel prices, while asking states to absorb further rate cuts. Maharashtra, which is also scheduled for Assembly polls in 2019, was the first to respond.
The state’s fiscal managers pointed out that the public exchequer will suffer a big hit with tax collections from these petroleum products contributing Rs 24,000 crore to the state’s kitty. But the government is hoping that the reduction in prices will help rein in retail inflation, which has been on the rise.
Maharashtra had last cut petrol and diesel prices on October 10, 2017, following a similar tax cut announced by the Centre. At that time, the state had cut petrol prices by Rs 2 per litre, and diesel by Rs 1 per litre.
On Thursday, the state cut state taxes of petrol by Rs 1.88 per litre. State’s Value Added Tax (VAT) on petrol will also reduce by another Rs 0.62 per litre owing to reduction in central excise, said Madan. While the state is yet to announce a reduction in state taxes on diesel, the reduction in central excise on diesel by Rs 0.58 per litre.
Ironically, Maharashtra has been among the state 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. The state government was also in favour in bringing petroleum products under the Goods and Services Tax (GST) regime.
In 2017-18, the state government had collected Rs 21,938 crore through taxes on petrol and diesel, while in the first half of 2018-19, the state has already collected Rs 10,237 crore, show official statistics. In Maharashtra, the state collects a Value Added Tax (VAT) of 26 per cent on petrol consumption in eight cities, including Mumbai, Thane, Navi Mumbai and Nagpur among others. An additional tax of Rs 9 per litre is also collected. For other parts of the state, the VAT rate is 25 per cent plus Rs 9 per litre. Similarly, VAT on diesel is 24 per cent plus Rs 1 per litre in these eight cities, and 21 per cent plus Rs 1 per litre for the rest.
Data shows that about 4.53 crore kilo litre of petrol, and 10.53 crore kilo litre of diesel was consumed in Maharashtra in 2017-18. Sources said that the chief minister has directed the finance department officials to look at avenues to make up for the loss of income.