MUMBAI: A report by State Bank of India (SBI) has said that state governments 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 because of the cut in excise duty. This gives them room to bring down fuel prices through a cut in state taxes as gains outstrip foregone revenue by Rs 34,208 crore.
The report said that states on an average can still cut diesel price at least by Rs 2 per litre and petrol price by Rs 3 per litre each without impairing their VAT revenue from oil. Bigger states like Maharashtra, which have a lower debt-to-GDP ratio, have significantly larger fiscal space for lowering their tax on diesel and petrol by even up to Rs 5.
According to the report, any change in excise duty by the Centre has a direct and automatic implication on the states as most of them levy VAT on diesel and petrol as a percentage of the value. The value of the fuel takes into account the base oil price, transportation charges, dealer commission and excise duty.
