Centre has suggested the states to lower the tax. Although, the state government had previously rejected the suggestion, contending that the state’s exchequer would not be able to bear the loss.
On October 4 the Narendra Modi government cut the basic excise duty on petrol and diesel by Rs 2 per liter. It was the first time when the NDA government cut excise duty on petrol and diesel after raising it on 11 occasions since November 2014.
In a bid to provide more relief to the consumers, Oil Minister Dharmendra Pradhan urged state governments to cut VAT on these products by 5 percent after slashing the excise duty.
Finance Minister Arun Jaitley wrote to Chief Ministers to take a cue from the Centre and slash VAT rates.
As it is very clear, BJP ruled states are likely to accept the Centre's suggestion Gujrat has already announced its plan to lower taxes, Madhya Pradesh, too, has implicated that it was actively considering the option. On the other hand, some non-BJP ruled states such as Kerala and Odisha have denounced the move.
As per the sources, Maharashtra has also decided to come under the same ambit to control the growing unrest among the middle class over price rise.
It might have some pitfalls, as a cut of Rs 2 per liter in the VAT on petrol and diesel will lead to a revenue loss of Rs 2600 crore.Maharashtra levies a high 26 per cent VAT on petrol and 24 percent on diesel in Mumbai, Thane, and Navi Mumbai.
The same is 25 percent for the rest of the state. Besides the VAT, a surcharge of Rs 11 per liter and Rs 2 per liter is collected on petrol and diesel, respectively.
Maharashtra Finance Minister Sudhir Mungantiwar said, “We have received a communication from the Centre for lowering VAT on petrol and diesel. I have called a review meeting in this regard Friday.”
The decision of farm loan waiver with cut VAT excise duty will further aggravate the situation. It is expected that it will soar to Rs 4.13 lakh crore in 2017-18.The state government has already been forced to cut down on its spending plan for 2017-18, which has also impacted the public sector capital investment.
The revenue loss due to the lowering of taxes will further aggravate the situation, confirmed sources since the Centre’s missive is tied to a political narrative, a senior minister said that the option of defying it was ruled out. While the state’s bureaucracy has also suggested the option of limiting the revenue loss by lowering the tax by Rs 1 per liter, sources said that the Centre’s message was loud and clear-cut the tax as much as possible. The state’s political leadership is likely to settle for a Rs 2 per liter cut.