Fuel tussle: Petrol dearer 5% since November in states with no VAT cut

Consumers in seven states that have not cut value-added tax (VAT) on petrol and diesel since November 3 last year when the Centre announced a reduction in excise duty by Rs 5 and Rs 10 per litre on these two fuels, respectively, bore the brunt of high prices, particularly petrol.

A detailed look at retail prices showed that the average prices of petrol in captials of the seven states increased by Rs 4.66 per litre, starting from November 3 last year until April 27 this year. The average consumer prices declined by Rs 1.41 per litre in the remaining state capitals that decided to cut VAT during the same period.

In Punjab, which cut VAT on petrol by a maximum of Rs 10.08 per litre, prices declined by Rs 6.4 per litre during the same period. Hyderabad saw prices going up by Rs 5 per litre in this period. Vizag also saw a rise in prices of around Rs 4.85 a litre on petrol during the same period.

Prime Minister (PM) Narendra Modi had named Maharashtra, West Bengal, Telangana, Andhra Pradesh, Kerala, Jharkhand, and Tamil Nadu (TN) as states that did not cut VAT on petrol and diesel after the Centre slashed excise duties with effect from November 3 last year.

As far as diesel is concerned, the average retail prices of the fuel in the capital cities of seven states that did not opt for a cut in state taxes saw a decline of Rs 1.82 per litre, from November 3 last year until April 27 this year. Against this, the capital cities of seven states that reduced VAT on diesel saw an average decline in prices by Rs 6.55 per litre for consumers.

Deepak Mahurkar, partner, PwC India, said taxation is a globally known tool by governments to use for achieving a multitude of objectives.

“Sometimes these objectives conflict. The governments at the Centre and states would evaluate the merit order and take decisions. Affordability and exchequer demand need balancing. Decarbonisation and energy transition have also emerged as important objectives, and we would see tax tools used for serving the objectives in times to come,” said Mahurkar.

Meanwhile, Modi’s comment has triggered yet another battle between non-National Democratic Alliance-ruled states and the Centre.

The Trinamool Congress (TMC) tweeted that the Centre owes West Bengal a whopping Rs 97,807.91 crore.

It also said the state government has been giving a rebate of Rs 1 per litre on petrol and diesel since February 2021 to reduce the burden on consumers. Besides, the state government has waived Rs 400-crore road tax on vehicles, said TMC.

TN Finance Minister Palanivel Thiagarajan urged the Centre to remove cess and surcharges on petrol and diesel and revert to the 2014 rates - an act which is fair and simple.

“We have repeatedly urged the Union government to reduce the cess and surcharges being levied and merge them with the basic tax rates, so that states get their rightful share from the proceeds of the Union taxes,” said Thiagarajan.

According to Thiagarajan, since TN levies ad-valorem taxes, which are applied after central taxes, the Modi government’s move to cut excise duty on petrol and diesel will cause an additional loss of Rs 1,050 crore on annual basis to the state.

Congress leader Rahul Gandhi alleged that the PM was abdicating his responsibility by blaming states for the high fuel prices, even when the Centre had taken 68 per cent of all fuel taxes.

“Sixty-eight per cent of all fuel taxes are taken by the Centre. Yet, the PM abdicates responsibility. Modi’s federalism is not cooperative. It’s coercive,” said Rahul.

So far as the state’s dues on account of the goods and services tax are concerned, the Union finance ministry had said on Wednesday that a compensation of Rs 78,704 crore was pending for 2021-22 due to inadequate balance in the compensation fund.

It said this pending amount would be released as and when the amount from cess accrued in the compensation fund.

Former finance minister P Chidambaram tweeted: “The amount owed is actually more (than Rs 78,704 crore).  If you add the amounts that the states claim are owed to them, the total amount may be bigger. Only the Controller General of Accounts can certify the correct amount.”