PM urges Oppn states to reduce VAT on fuel

NEW DELHI: Prime Minister Narendra Modi urged several Opposition-ruled states on Wednesday to cut taxes on petrol and diesel in order to reduce the economic burden on citizens, citing similar reductions by the Union government earlier — an appeal that sparked a furious war of words and statistics between the Centre and opposition parties.

Modi, speaking during a meeting with chief ministers on the issue of Covid-19 via a videoconference, said it was in the interest of cooperative federalism to do so since many states had reduced their component of the levy. “I request these states to do now what they should have done in November. By reducing the VAT you can lower the burden faced by the residents,” he said, calling it an “injustice” that consumers in some states paid more.

Modi named Maharashtra, West Bengal, Telangana, Andhra Pradesh, Tamil Nadu, Kerala, and Jharkhand, saying they did not reduce taxes on fuels “for some reason”. All these states are ruled by the Opposition, and ministers and political parties in power in these regions hit back at the Centre, with many saying the Union government had merely rolled back a portion of taxes it had itself raised when global oil prices plummeted at the start of the pandemic.

The Union government, on November 3, reduced central levies on petrol by ₹5 a litre and diesel by ₹10 a litre. “This [not reducing VAT] is not only injustice towards the people of the state but harms the neighbouring states also,” Modi said, adding that states like Karnataka and Gujarat undertook the tax reduction for the welfare of the people despite revenue losses while their neighbouring states earned revenue by not reducing the tax. “I urge all states to work as a team in this time of global crisis following the spirit of cooperative federalism.”

He added that the Centre shares 42% of the revenue it earns through excise duties on petrol and diesel with state governments.

The PM also spoke of the fight against Covid-19, which he said was fought “with the spirit of cooperative federalism”. “In the conditions imposed by global events, this spirit of cooperative federalism becomes all the more important,” he said, in the context of petrol and diesel prices.

Petrol and diesel rates in India have surged in tandem with a spike in global oil prices, particularly since Russia’s invasion of Ukraine.

According to a government estimate, between November and March 31, 2022, Maharashtra got ₹3,485 crore that it would have otherwise lost had it reduced VAT on the fuels. “The gains are calculated based on the revenue they would have foregone had they cut fuel VAT rates by the average of ₹5 per litre for diesel and ₹6 per litre for petrol done by the other states,” said a central government official, who asked not to be named.

This figure, according to the estimate, came to ₹1,190 crore for Bengal, ₹2,420 crore for Tamil Nadu, ₹1,475 crore for Telangana, ₹1,450 crore for Andhra Pradesh, ₹1,085 crore for Kerala and ₹665 crore for Jharkhand. For Delhi, this came to about ₹175 crore during the period on diesel as the state reduced VAT on petrol.