You may save nearly Rs 3 per litre on petrol, diesel if states cut tax

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Updated: October 5, 2017 5:52:17 PM

The Finance Ministry is asking state chief ministers to cut retail VAT rate on petrol and diesel by as much as 5%. We take a look at how much the petrol and diesel price may fall if the states actually comply and cut VAT rates by 5 percentage points.

The finance ministry is asking state chief ministers to cut retail VAT rate on petrol and diesel by as much as 5%. (Image: Reuters)

The price of petrol in Mumbai was close to hitting Rs 80 per litre when the Finance Ministry, on October 3, swung into action and cut the basic excise duty on petrol and diesel by Rs 2 per litre. Retail fuel prices, which were on a rise since July, fell immediately, with petrol price in Delhi falling as much as Rs 2.5 per litre as a result of the cut. But this was not it.

The very next day, on October 4, the Finance Ministry asked state chief ministers to cut retail VAT rate on petrol and diesel by as much as 5%. The states, which levy VAT on petrol at rates as high as about 48% and as low as 6%, are yet to take a decision on the rate cut, but an FE Online analysis suggests that the common man may save a bountiful if the states actually cut VAT rates by 5 percentage points each.

While there are multiple factors that play a crucial role in the calculation of petrol and diesel prices — crude oil prices, refinery price, dealers’ commission, international oil prices et al — lower retail VAT may bring down petrol prices by as much as up to Rs 2.8 per litre in some states, keeping other things constant.

The petrol and diesel prices vary throughout the country due to different retail VAT levied by different states. For example, the petrol price is highest in Mumbai due to 47.64% retail VAT levied by the Maharashtra government. Similarly, the diesel price is highest in Bhopal due to over 30% retail VAT levied by the Madhya Pradesh government.

This is what you would be paying for petrol in these cities if states cut retail VAT rate

The expected price of petrol in Delhi will land at Rs 65.69 per litre as against Rs 68.38 (on Wednesday), saving Delhites Rs 2.69 per litre. In Mumbai, the petrol price is likely to settle at Rs 74.54 per litre, lower by Rs 2.61 per litre. In other major cities too, the prices are expected to go down by at least Rs 2.6 per litre if the VAT rates are cut by 5 percentage points.

Petrol price will fall by Rs 2.64 per litre from Rs 70.85 per litre to Rs 68.21 in Chennai; Rs 2.8 per litre from Rs 71.16 to Rs 68.36 in Kolkata; Rs 2.71 per litre from Rs 69.97 to Rs 67.26 in Ahmedabad; Rs 2.78 per litre from Rs 68.52 to 65.74 in Chandigarh; Rs 2.68 per litre from Rs 72.40 to Rs 69.72 in Hyderabad; and Rs 2.67 per litre from Rs 69.44 to Rs 66.77 in Bangalore.

The diesel price, if the states allow the rate cut, is also likely to go down by nearly Rs 2.5 per litre. The expected price of diesel in Delhi will be Rs 54.47 per litre as against Rs 56.89. The diesel price in Mumbai is also expected be Rs 58.08 per litre instead of Rs 60.43.

This is what you would be paying for diesel in these cities if states cut retail VAT rate

In other major cities, the price of diesel after retail VAT rate cut will also down by Rs 2.4-2.5 per litre. In Chennai, the diesel price will go down by Rs 59.89 per litre to Rs 57.49 per litre, in Kolkata from Rs 59.55 to Rs 57.04, in Ahmedabad from Rs 63.03 to Rs 60.59, in Chandigarh from Rs 57.70 to Rs 55.23, in Hyderabad from Rs 61.81 to Rs 59.38, in Bangalore from Rs 56.96 to Rs 54.57.

Interestingly, the excise duty cut by the central government and the possible retail VAT rate cut by states, meant “to cushion the impact of rising international prices of crude petroleum oil”, is unlikely to bring ‘low petrol and diesel price days’ for common man, mainly, because in the last three years, the central government hiked the excise duty on petrol from Rs 9.48 per litre in April 2014 to Rs 21.48 per litre in January 2017. Even accounting for the latest cut, the excise duty on petrol is Rs 19.48 per litre. The case is same for diesel prices. The central government hiked excise duty on diesel from Rs 3.56 per litre in April 2014 to Rs 17.33 per litre in January 2017, which after the recent cut is at Rs 15.33 per litre. Although, on the back of rising crude oil prices, the rate cuts will bring some respite, if not ‘Achhe Din’.

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