Reduce VAT on fuel by 5 per cent: Centre urges states

New Delhi: With elections approaching and Opposition stepping up its campaign against high fuel prices, the Centre has put the ball in the states’ court. A day after reducing basic excise duty on petrol and diesel, the Centre on Wednesday urged states to reduce VAT on fuel by 5 per cent to “help people”. 

Meanwhile, to drive home the so called attempt to provide relief to the “aam aadmi”, BJP president Amit Shah said the Narendra Modi government’s decision to reduce petrol and diesel prices by Rs 2 shows the BJP’s commitment to giving relief to the common man and farmers at a time when oil price is rising globally. 

Union finance minister Arun Jaitley will be writing to all state chief ministers urging them to cut VAT on petrol an diesel. “We have proactively cut excise duty. Now it is the turn of states to reduce VAT,” said petroleum minister Dharmendra Pradhan while briefing the media. 

The minister said that unlike the Centre, states levy VAT as an ad valorem duty, which rises every time there is an increase in price and the Centre has “sacrificed” Rs 26,000 crore in revenue in the cut in excise duty.

“States are the biggest beneficiaries. They get all of the VAT collection plus they also get 42 per cent of the Central excise collections. The amount remaining with the Centre is to finance Centrally-sponsored schemes in states,” said Mr Pradhan.

The Centre had raised excise duty by Rs 11.77 per litre on petrol and Rs 13.47 a litre on diesel between November 2014 and January 2016 to take away gains arising from plummeting international petroleum rates. 

The excise duty on petrol was reduced to Rs 19.48 per litre from Rs 21.48 per litre and on diesel to Rs 15.33 a litre from Rs 17.33 previously on Tuesday. This after petrol price rose by Rs 7.8 since early July to reach over three-year high of Rs 70.88 a litre in Delhi, while diesel prices had risen by Rs 5.7 to touch an all-time high of  Rs 59.14 a litre.