Finance Ministry wants state governments to cut VAT/sales tax on fuel

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The Finance Ministry is not going to cut excise duty on diesel and petrol prices which will otherwise offer relief to the consumers. Instead, the ministry has asked the state governments to cut VAT/sales tax on fuel. The price of petrol currently is Rs.74.50 per litre and diesel is Rs.65.75 per litre. The fuel prices hit a 55-month high which signals for a cut in excise duty in order to ease the burden of the consumers. The excise duty on fuel makes up one-fourth of the retail fuel price. Therefore, the finance ministry believes that the government should focus on reducing the budgetary deficit from 3.5% in the last fiscal to 3.3% in GDP of the current fiscal.

Excise Duty on Fuel Price

An excise duty of Rs.19.48 has been levied by the central government on per litre of petrol and Rs.15.33 on per litre of diesel. Cutting the excise duty by even a rupee will lead to a loss of Rs.13,000 crore for the government. Moreover, the oil ministry is yet to officially suggest a cut in excise duty on fuel. VAT or sales tax differs from state to state. In the capital city of the country, the VAT on diesel is Rs.9.68 per litre and Rs.15.84 on per litre of petrol.

Meanwhile, state-owned oil companies have increased per litre diesel and petrol rates by 10 paise in Delhi. The price of petrol in Delhi is currently Rs.74.50 per litre and diesel is Rs.65.75 per litre. Among the South Asian countries, India has the highest fuel prices. Tax cut on fuel prices was last done in October 2017 by Rs.2 per litre. After the reduction of excise duty, the central government had asked the state governments to cut VAT/sales tax on fuel but only 4 states have complied – Himachal Pradesh, Madhya Pradesh, Gujarat, and Maharashtra.

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