Taking their cue from the Centre, which slashed excise duty on petroleum products by Rs2 per litre earlier this month, two BJP-ruled states Gujarat and Maharashtra and Congress-ruled Himachal Pradesh have cut Value Added Tax on petrol and diesel.
Gujarat has cut VAT by 4 per cent while Maharashtra has effected a marginal cut in the range of Re1 to Rs2 on diesel and petrol respectively. Similarly, Himachal Pradesh brought VAT down by 1 per cent. The VAT reduction by the HP government is on expected lines as Assembly elections in the state are round the corner.
The state is going to polls November 9. The reduction of excise duty by the Centre is in no way sensible as far as its fiscal maths goes. The expected annual hit to the Centre’s kitty will be a whopping Rs26,000 crore.
This was a purely populist measure by the Centre designed to score political brownie points vis-à-vis state governments. The step by the BJP governments in Gujarat and Maharashtra — the two top-of-the-list states in the country’s development index — confirms that the Centre wants to put pressure on states to cut VAT on petrol and diesel. The Centre has urged all states to cut VAT by 5 per cent to ease the burden on consumers.
International crude prices dropped to historic lows in 2014 and since then the prices have remained subdued until recently. Taking advantage of the depressed crude prices, the Centre went on increasing excise rates.
The Centre has been increasing excise load on petrol from Rs9.48 in 2014 to Rs21.48 while the excise factor in diesel has gone up from Rs3.56 to Rs13.47 in the same period. VAT on petroleum products is a major source of revenue for state governments, especially poor states such as Orissa, which need more assistance from the Centre to develop infrastructure.
Left to themselves, these states are not in a position to mobilise adequate resources to take care of their expenses, let alone incurring capital expenditure on infrastructure. Moreover, VAT in Orissa (26 per cent) is much lower than that of many other states in the country such as Andhra Pradesh (38.82 per cent); Delhi and Haryana (27 per cent); Maharashtra (46.52 per cent); Punjab (36.04 per cent); and Madhya Pradesh (38.79 per cent).
Thus it is only in order that state governments such as Kerala, Telangana and Orissa have gone vocal against a VAT cut on petrol and diesel. Bihar Chief Minister Nitish Kumar has also urged the Centre to cut the base price of fuel so that VAT rate will automatically come down to provide benefit to the consumer.
State finance minister Sashi Bhushan Behera has ruled out a reduction in VAT. His logic is that a cut of Rs2 in excise duty means the state government has already suffered a loss of 84 paise at the rate of 42 paisa per rupee.
The state would also lose 52 paise towards VAT at 26 per cent on the Rs2 excise duty that was whittled down by the Centre. The Centre should desist from forcing state governments to cut VAT for its populism which has been done with an eye on the impending polls beginning with Gujarat. The Centre’s sinister objective is to politically malign states ruled by opposition parties and score big with voters.
It thinks, by not doing so, each state government will be perceived as anti-people. Petrol and diesel rates in India are among the highest in the world. People did not enjoy the benefits of the soothing prices of crude as the government skimmed the benefits by raising excise duties while people in other developing countries, including in our neighbours, enjoyed the windfall.
It therefore follows that the Centre should not make a big fuss on cutting excise duty on fuel. At any rate, states got to lose their share of revenue from de-escalation of fuel prices. For years now, the Centre has been pressuring states to reduce VAT to make flying more affordable and to also allow loss-making Indian airlines to improve their margins. But the Centre’s pleas have largely fallen on deaf ears.