Three state gov­ern­ments re­duce tax on auto fuel, rais­ing hopes of its in­clu­sion in GST


Abi­par­ti­san con­sen­sus emerged on Tues­day af­ter Gu­jarat, Ma­ha­rash­tra and Hi­machal Pradesh cut value-added tax (VAT) on auto fuel in tan­dem with the cen­tral govern­ment’s de­ci­sion last week to re­duce ex­cise duty, stok­ing ex­pec­ta­tions that the in­clu­sion of pe­tro­leum prod­ucts in the goods and ser­vice tax (GST) may hap­pen sooner.

The ac­tions of the three state gov­ern­ments will put pres­sure on other states to cut VAT on auto fuel; it also sig­nals the pos­si­bil­ity of co­or­di­nated re­sponses even on prod­ucts out­side GST—IN this case, it could have a salu­tary ef­fect on re­tail in­fla­tion.

Bharatiya Janata Party-ruled (Bjp-ruled) Gu­jarat re­duced VAT on petrol and diesel by 4%, be­com­ing the first state to give re­lief to con­sumers from a re­cent surge in oil prices. The de­ci­sion, an­nounced by chief min­is­ter Vi­jay Ru­pani in Gand­hi­na­gar, will make petrol cheaper in the state by Rs2.93 and diesel by Rs2.72 a litre from Wed­nes­day. Gu­jarat levied 28.96% VAT on petrol and diesel prior to the tax cut.

The Ma­ha­rash­tra govern­ment, also led by BJP, fol­lowed suit with­out de­lay. The state re­duced VAT, re­sult­ing in a price re­duc­tion on petrol by Rs2 and diesel by Rs1.

Later in the evening, Hi­machal Pradesh, ruled by the Con­gress, an­nounced a 1% re­duc­tion in VAT.

Ma­ha­rash­tra fi­nance min­is­ter Sud­hir Mun­gan­ti­war said on Tues­day that states are in prin­ci­ple on board with the idea of bring­ing pe­tro­leum prod­ucts un­der GST, although a de­ci­sion has to be taken by the GST Coun­cil. Oil min­is­ter Dhar­men­dra Prad­han, too, has been pitch­ing for the in­clu­sion of petrol, diesel, jet fuel, nat­u­ral gas and crude oil in the GST regime as it would ease the tax bur­den of oil and gas com­pa­nies which, at present, are sub­jected to two streams of tax­a­tion, GST and VAT.

An of­fi­cial of the GST Coun­cil, when con­tacted, said on con­di­tion of anonymity that a pro­posal to in­clude pe­tro­leum prod­ucts in GST has not been dis­cussed by the Coun­cil as yet. A state fi­nance min­is­ter con­firmed as much, say­ing there was “no such pro­posal”.

Mun­gan­ti­war said the new rates on petrol and diesel will be ef­fec­tive from Wed­nes­day. He said the re­duc­tion of VAT will cost the ex­che­quer Rs940 crore from petrol sales and Rs1,075 crore from diesel sales. The state would try to make up the rev­enue loss by adopt­ing aus­ter­ity mea­sures, he said.

The cen­tral govern­ment cut ex­cise duty on petrol and diesel by Rs2 last week, the first tax cut on fuel by the cur­rent govern­ment, to tame ris­ing in­fla­tion. The re­cent spike in auto fuel price, in­duced by re­fin­ery shut­downs in the US due to vi­o­lent weather, had an im­pact on the cost of liv­ing. Con­sumer price in­dex-based in­fla­tion ac­cel­er­ated for the sec­ond con­sec­u­tive month by 3.36% in Au­gust from 2.36% in July.

Prad­han said on Tues­day that the GST Coun­cil is the best ex­am­ple of a fed­eral in­sti­tu­tion deal­ing with cen­tral-state is­sues and that a de­ci­sion on in­clu­sion of pe­tro­leum prod­ucts will be taken by con­sen­sus. “The re­spon­si­bil­ity of peo­ple’s wel­fare rests equally with Union and state gov­ern­ments,” said Prad­han.


Co­or­di­nated re­sponse: Gu­jarat, Ma­ha­rash­tra, Hi­machal Pradesh have cut VAT on auto fuel.

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