Tamil Nadu cuts petrol price by Rs3/ltr

Presenting his maiden budget to the Assembly on Friday after the state polls in April, Tamil Nadu finance minister Palanivel Thiaga Rajan said the tax cut on petrol would mean a ₹3 per litre reduction.

“I am happy to inform the House that this government has decided to reduce the effective rate of tax on petrol by ₹3 per litre and thereby provide major relief to the toiling working class people in the state. This measure will result in a loss of revenue of Rs1,160 crore a year,” the Finance Minister said, news agency PTI reported.

The DMK had promised in the run-up to the 6 April Assembly polls that it would reduce prices of petrol and diesel by Rs5 and Rs4 respectively, PTI said.

Tamil Nadu’s move is likely to put pressure on other states and on the Central government to lower taxes on autofuel given that petrol price is above ₹100 a litre in all the four metro cities. In Mumbai, petrol is being sold at ₹107.8 a litre on Friday, as per official figures.

Union finance minister Nirmala Sitharaman had told the Parliament on Tuesday in a written reply to a question that the Reserve Bank of India’s (RBI) monetary policy committee had in June pointed out the risk that high commodity prices had posed to the inflation outlook.

“Excise duties, cess and taxes imposed by the Centre and states need to be adjusted in a coordinated manner to contain input cost pressures emanating from petrol and diesel prices,” the minister’s reply quoted RBI as saying.

The Centre had in June analysed the crude oil price trends but opted to wait and watch the trajectory of oil price in world markets, before rushing to make any tax rate adjustments, Mint had reported on 12 July.

Some of the states have pointed out that a part of the taxes levied by the Centre on petrol and diesel is in the form of cess, the proceeds of which are not shared with states. The Central government argues that states levy taxes on the fuel on ad valorem basis, which goes up when the commodity’s price goes up, while central taxes are in the form of specific duty which does not vary with the price per litre. While both the central and state governments recognise high fuel price as a concern, revenue requirement to manage covid and infrastructure investments continue to keep fuel taxes high.

At present, bulk of the central excise duty on auto fuel – ₹20.5 a litre on petrol and ₹22 a litre on diesel are levied collectively in the form of agriculture infrastructure development cess and road and infrastructure cess.