Kerala cuts tax on petrol, diesel by Re 1

Hours after oil-marketing companies cut the price of petrol and diesel by 1 paisa owing to a fall in global crude oil rates, the state government of Kerala reduced the tax levies on fuel by Re 1. The move, effective from June 1, comes amid growing clamour for an excise duty cut to bring down skyrocketing fuel prices.

The decision, which was taken at a meeting of the state cabinet in Thiruvananthapuram, marks the first instance of a cut in fuel taxes after prices touched all-time highs across the country following 16 consecutive hikes post Karnataka elections.

"Our state is not doing financially well. But our government has taken the decision to cut sales tax on fuel to effect a Re 1 reduction in petrol and diesel prices from June 1. This will cause a revenue loss of Rs 509 crore annually. This should be seen as our message to the Centre. Fuel prices cannot go up like this. They must slash prices so as to provide relief for the common man," Chief Minister Pinarayai Vijayan said at a press conference following the cabinet meet.

According to IndianOil, in state's capital Thiruvananthapuram, the petrol was retailing at Rs 82.61 per litre whereas diesel was available for Rs 75.19 per litre. Kerala currently levies 24.52 per cent tax on diesel and 31.8 per cent on petrol. The state also levies Re 1 as a cess on both petrol and diesel. Fuel revenue is the third-largest revenue grosser for the state.

According to SBI's Ecowrap report, states can cut petrol price by Rs 2.65 per litre and diesel by Rs 2 a litre if they decide to forego potential additional gains out of high crude oil rates. It also suggested that to further rationalise fuel prices states can consider a pricing mechanism where VAT is imposed on base price only by states and not on prices inclusive of the Centre's tax.

The price of petrol has shot up by Rs 3.79 per litre and that of diesel by Rs 3.37 per litre in the past 16 days. Fuel prices in India are among the highest in South Asia. Currently, petrol is taxed at a little over 100 per cent and for diesel the taxes come at around 66.48 per cent. These taxes include central excise duty and VAT.

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. After moving to daily revision of fuel prices in June last year, the government had cut basic excise duty on petrol and diesel by Rs 2 per litre in October last year.