Reduction in excise costs state ₹1,700cr; MVA in a fix over VAT
MUMBAI: While the Maharashtra government is under tremendous pressure for the reduction of the value-added tax (VAT) on petrol and diesel, the state is also in a fix over the losses it incurred due to the Central government’s decision of reducing central taxes last month.
After the Central government reduced its taxes on petrol and diesel by ₹5 and ₹10 ahead of Diwali on November 3, the state government’s VAT, which is levied on an ad Valorem (according to value) basis automatically reduced by ₹1.19 and ₹2.41 a litre on petrol and diesel respectively.
This has led to the estimated losses to the exchequer by around ₹1,700 crore between November 2021 and March 2022.
Losing business to neighbouring states
The state government’s estireduction mated revenue from the VAT from petrol and diesel in FY 2021-22 is ₹28,000 crore. The annual sale of diesel in Maharashtra is 1.15 lakh kilolitre, while petrol sale is 50,000 kilolitre.
Besides the setoff losses because of the reduction in the central taxes, the state has been losing its business to the neighbouring states due to the huge difference in the price of fuel.
According to the rough estimates, the business loss is around 10%.
“The major loss is in the diesel sales. For the neighbouring states like Gujarat, Madhya Pradesh, Karnataka and Goa the diesel is cheaper by ₹4.81, ₹3.27, ₹9.13 and ₹6.87 a litre, respectively.
The heavy vehicle fleets have been refuelling from the bordering districts to save money.
The difference is too huge after the respective Bharatiya Janata Party (Bjp)-led states reduced their taxes after the Central government’s decision, resulting in the huge loss of business,” said an official from the finance department.
Uday Lodh of Federation of All Maharashtra Petrol Dealers Association said, “The petrol dealers in the districts sharing borders with other states with cheaper diesel have been badly hit. Their business has dropped by up to 90% as the difference is as high as ₹8 a litre. The state government should immediately think about reducing its VAT, to give a level playing field.”
State may take a call on VAT by Feb
The state government is under tremendous pressure for the in its VAT on the lines of the reduction in the taxes by the Centre and other states.
The value-added tax levied in Maharashtra on diesel is 24% in Mumbai, Thane, Navi Mumbai, Amravati and Aurangabad and 21% in the rest of the state, with an additional cess of ₹3 a litre.
The VAT on petrol in Mumbai, Thane, Navi Mumbai, Aurangabad and Amravati 26% and 25% in the rest of the state with the additional cess of ₹10.12 per litre. The VAT and the cess in Maharashtra are considered to be the highest in the country.
With the tremendous pressure from all fronts, including motorists, transporters, petroldiesel dealers for the reduction in the VAT, the state government is expected to make the decision ahead of the local body elections slated to be held in February.
Shambhuraj Desai, minister of state for finance, said, “The reduction in Centre’s tax by ₹5 and ₹10 on petrol and diesel was after increasing the rate multifold. Other states have indeed reduced their VAT and it has resulted in a loss to our business in the bordering areas. We are studying the potential burden if the VAT is reduced. It is a policy decision, which will be taken after due deliberation and by bringing the proposal before the cabinet.”
A Nationalist Congress Party minister requesting anonymity, said, “Reduction in VAT on diesel by ₹1 leads to the losses of ₹800 crore and ₹7,000 crore if ₹1 is reduced on petrol. By reducing just ₹1 to ₹2 will not give us any political mileage. However, the reduction by the Centre was huge.
Besides the consequential reduction of ₹2.41 on diesel after the November 3 decision by the Centre, we will have to reduce the tax at least by ₹2.50-₹3.
But it will be done at the huge cost of more than ₹3,000 crore.”