Delhi cuts VAT; diesel cheaper by ~8/ltr

Diesel price in the national capital was on Thursday cut by ~8.36 per litre after the state government rolled back a VAT hike that had made the fuel uncompetitive in comparison to adjoining cities such as Gurugram and Noida.

Delhi Chief Minister Arvind Kejriwal announced a reduction in VAT or sales tax on diesel from 30 per cent to 16.75 per cent, saying the move will help the city ’s economy recover from the impact of coronavirus pandemic.

The reduction in the value-added tax (VAT) rate, which would be effective from midnight, will help bring down the price of diesel to ~73.64 per litre, he said. Delhi had on May 5 hiked VAT on petrol to 30 per cent from 27 per cent and on diesel from 16.75 per cent to 30 per cent.

The May 5 VAT hike translated into steepest ever price increase of ~7.10 per litre in diesel. Rates of petrol went up by ~1.67 a litre. The subsequent increase in the base price of diesel because of a surge in international rates led to an increase in the incidence of VAT as the tax is levied on ad valorem basis.

The VAT hike made diesel costlier than it was being sold in adjoining cities — Gurugram, Noida, and Ghaziabad, putting local industries using the fuel at a cost disadvantage. In comparison to pre-vat reduction price of ~81.94 per litre in Delhi, diesel was priced at ~73.83 per litre in Noida, ~73.68 in Ghaziabad and ~73.98 in Gurugram. While Kejriwal announced cut of VAT on diesel, no reduction on petrol was announced.”

Petrol in Delhi costs ~80.43 per litre while in adjoining Noida it comes for ~81.08 and in Ghaziabad for ~80.95 and is priced at ~78.64 per litre in Gurugram.

The May 5 hike in VAT rates would have led to ~900 crore additional revenue for the state government in a year.

“Delhi Cabinet has decided to reduce VAT on diesel from 30 per cent to 16.75 per cent. This will reduce the price of diesel in Delhi from ~82 to ~73.64 i.e. by ~8.36 per litre,” Kejriwal said.

He said reviving the economy was a serious challenge but it would be achieved together with the two crore people of Delhi like they have helped in bringing the virus under control.