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Declining prices of petrol and diesel in the domestic market has become of cause of concern for the Punjab government, as these will have an impact on the revenues collected in the form of tax on the sale of oil.
Value-added tax (VAT) on petrol and diesel is an important source of revenue for the states. The dwindling fuel prices have compressed the VAT base for the state exchequers. The sources in Punjab and Haryana government said decrease in fuel prices is having an impact on VAT receipts. "The oil prices for the first time registered such a steep and consistent fall. For the past many years, prices were on rise and so were the tax revenue from the sale of fuel," said a source.
The officials refused to share the exact amount of VAT collected from fuel but it constitutes one-third of the total tax receipts of the states. The VAT collection in Punjab stood at Rs 17,760 crore and that in Haryana was Rs 19,930 crore in 2014-15.
Sources said Punjab is in discussions with Haryana and Chandigarh to revise VAT on fuel in tandem to check the illegal cross-border trade of fuel.
According to sources, the state governments are also mulling to convert VAT on fuel to specific tax. The specific tax is charged on the quantity of the product and VAT on the value of the product. This may help insulate their tax receipts from the price volatility in the international and domestic market.
The average retail sale price of petrol in Punjab is Rs 63.30 a litre and that of diesel is 46.38 a litre. Petrol in Haryana is cheaper and costs Rs 59.36 and diesel costs Rs 46.60 a litre.
VAT on Petrol in Punjab is 32.5 per cent and is 26.25 per cent in Haryana. VAT on diesel in Punjab is 12.36 per cent and is 12.07 per cent in Haryana.
As the collection of VAT on fuels is hassle-free and leakage-proof, the state state governments find it the easiest way to raise the revenue, said M C Gupta, general secretary, the All Haryana Petroleum Dealers' Association.
Both Punjab and Haryana have the central sales tax outstanding with the Centre and pressed under financial stress due to power subsidies and huge Plan expenditure. The estimated power subsidy in Punjab is Rs 5,200 crore and is projected to be Rs 5,338.5 crore in Haryana in 2014-15.
With limited sources of revenue generation, and burgeoning expenditure, the lower revenue returns on account of VAT collection on fuel has pressed the states to seek higher funds allocations.
