With Maharashtra becoming the second BJP-ruled state to reduce Value Added Tax (VAT) on fuel, petrol and diesel have become cheaper in the state. Finance Minister Sudhir Mungantiwar Tuesday announced the government’s decision to slash VAT on petrol by Rs 2 per litre and that on diesel by Re 1 per litre. The lowered tax regime will come into force from October 11.
Earlier, poll-bound Gujarat announced a four per cent reduction in VAT on petrol and diesel. Facing heat from the Opposition over rising retail fuel prices, the Central government had on October 4 cut the basic excise duty on petrol and diesel by Rs 2 per litre. This was the first time the Narendra Modi government cut excise duty on petrol
Almost immediately after slashing the rates, Union Oil Minister Dharmendra Pradhan urged state governments to cut VAT on these products by 5 per cent for passing on more relief to consumers. Later, Union Finance Minister Arun Jaitley formally wrote to chief ministers in this regard.
Announcing the rate cut as a “Diwali gift to the masses”, the Maharashtra government expressed hope that the benefit would be passed on to consumers by oil companies. The BJP is hoping that the move will help arrest the rising anger among the middle class against soaring prices.
The VAT on petrol in Mumbai, Thane and Navi Mumbai has now come down to 24 per cent from the earlier 26 per cent. In the rest of the state, it has been lowered from 25 per cent to 24 per cent. The 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.
Mungantiwar admitted that Tuesday’s decision would lead to a revenue loss of Rs 2,015 crore. The state’s revenue projections had already been set back by Rs 1,052 crore when the Centre cut excise duty on oil products. This means that the state exchequer will have to bear a annual revenue loss of Rs 3,067 crore.
Maharashtra was among the states that had previously shot down the suggestion of lowering VAT on petrol and diesel and had contended that the state’s exchequer would not be able to bear the loss.
Maharashtra’s debt stock was projected to soar to Rs 4.13 lakh crore in 2017-18 before the impact of the farm loan waiver, which is expected to worsen the situation further. The state’s economy has been consistently missing the fiscal deficit and the revenue deficit targets set by the Centre in the last few years. This year, the government has already been forced to impose a cut on spending.
The government’s fiscal managers admitted that the lowering of VAT on petrol and diesel will make revenue mobilisation in the debt-ridden state even more difficult. The state government’s dependence on off-budget borrowings to fund big-ticket infrastructure projects has risen.