Govt's fuel price cut hits Yogi's fiscal math ahead of election year

The annual loss in revenue is pegged at Rs 40 billion, UP scrambling for alternative resources

The government's decision to slash the prices of petrol and diesel by Rs 2.50 per litre last week to provide relief to the common man, has disturbed the fiscal math of Uttar Pradesh's Yogi Adityanath-led government ahead of the crucial election year.

The slashing of VAT on petrol and diesel is estimated to hit the state’s tax revenue by Rs 40 billion on an annual basis. Since, only six months remain for the current financial year to come to an end, the state's Commercial Tax Department would forego tax of about Rs 20 billion till March 2019.

A senior UP finance department official told Business Standard the state government is exploring other resources to shore up its tax and non-tax revenue to make up for the tax revenue gap.

However, he also said that most tax revenue streams had already been harnessed in the recent supplementary budget, which was tabled in the state legislature in August and has been subsequently approved.

“Nonetheless, we would explore the possibility of cutting down on ‘wasteful’ expenditure and eventual economisation in the various schemes that are underway,” he said. This could mean that various socioeconomic schemes in the medical, health, infra, education and rural sector could be adversely impacted with either delays or outright tweaking in their bandwidth.

“Since, the Centre has also taken a hit in its revenue kitty on account of fuel prices cut, it is unlikely to compensate the state governments on this count,” he asserted.

During 2017-18, the tax mop from the sale of diesel and petrol in UP stood at almost Rs 95 billion and Rs 65 billion respectively, totalling Rs 160 billion, compared to about Rs 140 billion during the preceding fiscal 2016-17, thus showing a revenue growth of more than 14% in this segment.

Taking a conservative tax revenue growth of 15% during the current fiscal, the state tax coffers would have been richer by more than Rs 182 billion if the VAT cut was not resorted to by the state.

After the decision to cut VAT on fuel was announced by chief minister Yogi Adityanath on October 4, the tax rates on petrol and diesel in UP had decreased to 23.78% and 14.05%, down from 26.80% and 17.48% respectively. Before the tax cut, the state was mopping Rs 16.88 and Rs 10.90 per litre from the sale of petrol and diesel respectively.