In charts: Why states can still cut Rs 2 on diesel and Rs 3 on petrol without impacting their VAT revenue
NEW DELHI: India’s states have gained Rs 49,229 crore from value added tax (VAT) revenue on fuel when oil prices were increasing and will forego Rs 15,021 crore when oil price has been downwardly adjusted through excise cut. This implies that gains still outstrip the revenue forgone by Rs 34,208 crore and hence states can further cut the oil prices, said SBI in a report.
VAT collections rise when petrol and diesel prices increase and get reduced automatically when the Centre cuts excise duty. In a bid to reduce inflationary pressure on households, the Centre cut central excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 litre earlier this month, following which the Centre asked states to consider cutting VAT to further reduce inflation.
An SBI calculation reveals that every Re 1 cut in VAT on diesel leads to around Rs 9,500 crore loss for states and every Re 1 cut in VAT on petrol on an average leads to loss of Rs 4,500 crore. Thus, states still can cut the diesel price on an average by upto Rs 2 per litre and petrol price by Rs 3 per litre each without impairing their fiscal arithmetic.
