It has been decided to implement a cumulative cut of ₹2.5 a litre on fuel prices, with the Centre absorbing ₹1.5 of this and the oil marketing companies (OMCs) ₹1, Union Finance Minister Arun Jaitley announced on Thursday.
Mr. Jaitley said he would write to all the States on Thursday itself urging them to match the ₹2.5 cut with an equivalent cut in their respective VAT rates on fuel.
“As you know, brent oil has crossed $86 a barrel, the higher it has been in the last four years,” Mr. Jaitley said at a press conference. “Along with this, U.S. interest rates have been raised to 3.2%, the highest ever.”
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“Both these developments have led to a significant impact on global markets. We have seen that in the stock market and the currency market. Today, after several inter-ministerial discussions, especially with the Department of Revenue and the Ministry of Petroleum and Natural Gas, it has been decided to give relief to consumers with an excise duty cut of ₹1.5 a litre, and the OMCs will factor in a ₹1 cut in their pricing formula.”
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Mr. Jaitley said this would have only a marginal impact on the fiscal deficit — less than 0.05% of the fiscal deficit — since the excise duty cut would be balanced out by higher direct tax collections.
“It will be clear after this, which States mean what they write and actually implement the VAT cut,” Mr. Jaitley said. “Those who don’t, the people will question them.”
PTI adds:
While the Centre cut excise duty on petrol and diesel by ₹1.50 per litre and asked oil firms to absorb ₹1 a litre of prices, BJP-ruled States including Gujarat, Maharashtra, Uttar Pradesh, Madhya Pradesh, Chattisgarh, Jharkhand, Assam and Tripura announced a cut in VAT of up to ₹2.5 per litre to effect a ₹5 per litre reduction in pump rates. The price cuts would be effective from midnight tonight.