Having given a modicum of relief to consumers by reducing the excise duties on diesel and petrol by Rs 2 per litre each — 11.5% and 9.4%, respectively — the Centre has asked the states to follow suit by reducing the ad valorem value-added tax (VAT) rates on the two auto fuels by 5 percentage points each. Finance minister Arun Jaitley would write to the state governments shortly urging them to cut the tax rates, petroleum minister Dharmendra Pradhan said here.
States levy VAT on fuels at hefty rates: 20-42% on petrol (motor spirit) and 12-32% on high-speed diesel (HSD), respectively. While the states had benefited from the Centre’s series of excise hikes — 386% in case of diesel and 126% for petrol between October 2014 and March 2016 — they also get 42% of the divisible pool of the central taxes.
VAT on petrol is the highest in Maharashtra while that in Andhra Pradesh taxes diesel the most.
The excise cut effective Wednesday would cost the Centre Rs 13,000 crore in the second half of the current fiscal.
According to Petroleum Planning and Analysis Cell data, the total tax contribution of the petroleum sector to the central exchequer was Rs 3,34,534 crore in 2016-17 — around 24% of its total tax receipts — including corporate tax, profit petroleum and cess on crude oil, among others. Of this, Rs 24,2691 crore was collected through excise duty, up 211% from the collections in 2012-13.
“They (states) have their own financial commitments yet we are hopeful that they will cut taxes. States should also take responsibility,” Pradhan said.
The Centre’s decision to cut excise came after a political backlash due to rising fuel costs. Global crude oil prices have been relatively benign since the Narendra Modi government took over; they have, however, firmed up recently. “Due to the increase in the international prices of petrol and diesel during the last few weeks, the retail selling prices of petrol and diesel at Delhi have risen to Rs 70.83 per litre and Rs 59.07 per litre, respectively, as on October 2, 2017. This rise in the prices of petrol and diesel is also reflected in WPI inflation, which has increased to 3.24% for the month of August 2017, as compared to 1.88% for the month of July 2017,” the finance ministry said.