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Taking cue from the Centre, which reduced taxes on petrol and diesel by Rs 5 per litre and Rs 10 per litre, respectively, effective Thursday, as many as 22 states and Union Territories have cut their sales tax/VAT rates on the two fuels. Though the state taxes are levied on an ad valorem basis as opposed to Centre’s specific imposts, the tax cuts by the states/UTs are up to Rs 8.7/litre for petrol and Rs 9.52/litre in the case of diesel.
The states and UTs that extended additional VAT benefits are Karnataka, Puducherry, Mizoram, Arunachal Pradesh, Manipur, Nagaland, Tripura, Assam, Sikkim, Bihar, Madhya Pradesh, Goa, Gujarat, Dadra & Nagar Haveli, Daman & Diu, Chandigarh, Haryana, Himachal Pradesh, Jammu & Kashmir, Uttarakhand, Uttar Pradesh and Ladakh. Karnataka saw Rs 8.62 a litre cut in petrol price due to VAT reduction and Rs 9.40 in diesel rates, while Madhya Pradesh gave its citizens an additional Rs 6.89 price relief on petrol and Rs 6.96 on diesel. Uttar Pradesh lowered VAT on petrol by Rs 6.96 and diesel by Rs 2.04 a litre.
The additional reduction, on top of the excise duty cut, is the lowest in Uttarakhand because of lower duty cuts and the highest in UT of Ladakh. On petrol, the price reduction over-and-above excise reduction ranges from Rs 1.97 per litre in the case of Uttarakhand to Rs 8.70 in the case of UT of Ladakh. For diesel, the additional reduction warranted by VAT cuts, ranging from Rs 17.5 a litre in Uttarakhand to Rs 9.52 in the case of Ladakh.
States that have so far not lowered VAT include Congress and its allies ruled Rajasthan, Punjab, Chhattisgarh, Maharashtra, Jharkhand and Tamil Nadu. AAP-ruled Delhi, TMC-governed West Bengal, Left-ruled Kerala, BJD-governed Odisha, TRS-led Telengana and YSR Congress-ruled Andhra Pradesh.
Wednesday’s excise duty cut had translated into a reduction in the price of petrol in the range of Rs 5.7 to Rs 6.35 per litre across the country and diesel rates by Rs 11.16 to Rs 12.88.
Of course, the cut in central taxes will automatically translate into reduction in state taxes because the latter are levied on the base, inclusive of the Centre’s taxes. Any rate cut by the states will lead to further reduction in the tax incidence.
Analysts at Nomura estimated that the Centre could lose Rs 45,000 crore (0.2% of GDP) in the remainder of FY22 due to the tax cuts on auto fuels. “In FY21, the government earned Rs 3.7 lakh crore (~1.9% of GDP) from excise duties: Rs 32.9/litre on petrol and Rs 31.8/litre on diesel. So far, in H1FY22, petrol consumption has risen by 21.4% y-o-y and diesel consumption by 15.4%, reflecting the sharp increase in activity,” they added.
Analysts at Barclays said the impact of lower taxes on petrol and diesel on the Centre’s FY23 revenues will be almost Rs 1.3 lakh crore (0.5% of GDP). “Overall, the direct impact of this price reduction will be 12bp on headline CPI in November, and it will lead to an indirect impact of a 12bp reduction in 3 months, bringing the total impact to 24bp, as per our estimates,” they added.
No estimate of the revenue losses for the states are immediately available.
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With inputs from FE, PTI, India Infoline
