Petrol, diesel prices: These states have room to cut VAT, says SBI Report
PremiumIn a bid to reduce inflationary pressure, the Centre slashed central excise duty on petrol by ₹8 per litre and on diesel by ₹6 litre earlier this month
States have room to cut value added tax (VAT) on petrol and diesel, State Bank of India Research said in a report. "When Centre increases excise duty on fuel, states gain in revenue and when centre cuts excise, states forego revenue from fuel. Our estimates indicate that states have gained ₹49,229 crore from VAT revenue on fuel when oil prices were increasing and the states will forego ₹15,021 crore when oil price has been downwardly adjusted through excise cut. This implies that gains still outstrip the revenue forgone by ₹34,208 crore and hence states can further cut the oil prices. Maharashtra has gained the most, followed by Gujarat and Telangana," said SBI’s Chief Economic Advisor Soumya Kanti Ghosh in the report.
In a bid to reduce inflationary pressure, the Centre has slashed central excise duty on petrol by ₹8 per litre and on diesel by ₹6 litre. Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman have both asked states to consider cutting VAT to further reduce inflation.
The report further said that if the cushion of ₹34,208 crore from oil excise is entirely adjusted such that states have no gain or loss from oil revenue over and above the budgetary estimates, we believe that states on an average can still cut diesel price at least by ₹2 per litre and petrol price by ₹3 per litre each without impairing their VAT revenue from oil.
“Bigger states like Maharashtra which have lower debt to GDP ratio have significantly large fiscal space for lowering their tax on diesel and petrol by even up to ₹5," the report said.
SBI Research said that state’s own tax revenue to GDP of many states including Haryana, Kerala, Maharashtra, Rajasthan, Telangana and Arunachal Pradesh is higher than 7%. We believe there is compelling reason for these states to adjust taxes on fuel.