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After excise duty cut, Arun Jaitley wants states to slash VAT on petrol, diesel

The government now wants state governments to cut VAT on petrol and diesel by 5 per cent to ease the skyrocketing fuel prices.

BT Online        Last Updated: October 4, 2017  | 21:23 IST
After excise duty cut, Arun Jaitley wants states to slash VAT on petrol, diesel

After seeing a constant upswing in its price for months, petrol and diesel prices on Wednesday came down sharply as the government announced a cut in basic excise duty on petrol and diesel. The government now wants state governments to cut VAT on petrol and diesel by 5 per cent to ease the skyrocketing fuel prices.

Finance Minister Arun Jaitley will soon write to all state chief ministers urging them to cut VAT on petrol an diesel, Oil Minister Dharmendra Pradhan said. "We have proactively cut excise duty. Now it is the turn of states to reduce VAT," Pradhan added. Unlike the Centre, states levy VAT as an ad valorem duty which rises every time there is a hike in petrol price. 

Petrol price in Delhi came down by Rs 2.50 per litre. On October 3, the price of 1 litre of petrol was Rs 70.88 and on Wednesday it fell to Rs 68.38. Similarly, in the financial capital, the petrol retailed at Rs 79.99 on Tuesday. However, it fell sharply to Rs 77.51 on October 4.

Diesel price in Delhi retailed at Rs 59.14 before the excise cut. On Wednesday, the price of diesel in Delhi dropped by Rs 2.25 to Rs 56.89. In Mumbai, diesel price came down by Rs 2.39 to Rs 60.43. Before the excise cut, diesel retailed at Rs 62.82 in Mumbai.

The cut in retail selling price is higher after factoring in its impact on value added tax (VAT). As things stand, excise duty is levied on fuel produced ex-refinery. Local sales tax or VAT is levied on the total of ex-refinery cost plus excise duty and commission paid to dealers, IOC Director (finance) A K Sharma said.

So, till Tuesday the VAT on petrol in Delhi was Rs 15.07 while on Wednesday it stands at Rs 14.54. On diesel, VAT is Rs 8.41 per litre Wednesday as against Rs 8.73 previously. The excise duty cut paused the relentless rise in rates witnessed since July 4.

Government's decision to cut excise duty on petrol and diesel will be a relief for consumers as it will lower CPI inflation by around 8-9 bps, but will add to fiscal concerns of the economy, a Nomura report said.

"Given already stretched fiscal finances due to front- loaded spending and lower non-tax revenues, this decision further adds to the risk that the government will likely miss its 2017-18 fiscal deficit target of 3.2 per cent of GDP," the report said.

On petrol, excise has been cut to Rs 19.48 per litre from Rs 21.48 per litre and on diesel to Rs 15.33 a litre from Rs 17.33 previously. The rise in petrol and diesel prices also reflected in wholesale price inflation, which increased to 3.24 per cent in August 2017, as compared to 1.88 per cent in July.

The central government on Tuesday cut basic excise duty on petrol and diesel by Rs 2 per litre from, which became effective October 4. Petroleum and Natural Gas Minister Dharmendra Pradhan had earlier said that fuel prices may come down by Diwali. The move comes a day before Reserve Bank of India (RBI) will unveil its fourth bi-monthly monetary policy statement.

Petrol and diesel prices have gone through the roof ever since the central government announced daily revision of fuel prices. Petrol price in Delhi on Tuesday was at Rs 70.83 per litre, whereas in Mumbai a litre of petrol costs Rs 79.99.

The government will incur losses to the tune of Rs 13,000 crore for the remainder of ongoing financial year and Rs 26,000 crore in a full year, said a government statement.

"The government has decided to reduce the basic excise duty rate on petrol and diesel (both branded and unbranded) by Rs 2 per litre with effect from October 4, 2017. This decision has been taken by the Government in order to cushion the impact of rising international prices of crude petroleum oil and petrol and diesel on Retail Sale Prices of Petrol and Diesel as well as to protect the interest of common man," Ministry of Finance said.

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. This also prompted the Government to act swiftly in this regard, it added.

The government had steadily increased excise duty on petrol and diesel when the global crude prices had plummeted below $30 a barrel.

The government had in November 2015 and January 2016 raised excise duty on petrol and diesel five times to take away gains arising from plummeting international oil prices. Excise duty on petrol was hiked by Rs 4.02 a litre and that on diesel by Rs 6.97.

Prior to that, the government had in four installments raised the excise duty on petrol and diesel between November 2014 and January 2015 to take away gains arising from fall in international oil prices.

The four excise duty hikes during this period totalled Rs 7.75 per litre on petrol and Rs 6.50 a litre on diesel. It led to about Rs 20,000 crore in additional revenue to the government, helping it meet the fiscal deficit target.

On July 1, the prices of petrol and diesel in the national capital were Rs 63.09 and Rs 53.33 per litre respectively. Excise duty on petrol was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre ever since Prime Minister Narendra Modi-led BJP government came to power in 2014.

The government has excluded petrol and diesel from the ambit of GST (Goods and Service Tax). Petroleum products still attract state and central levies such as excise duty and VAT (Value added tax). 

with PTI inputs

 

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