Pressure mounts on Karnataka to reduce VAT on petrol, diesel

Both Centre and State govts. are reluctant to forgo revenue

October 12, 2017 12:52 am | Updated 12:52 am IST - Mangaluru

With Gujarat, Maharashtra and Himachal Pradesh reducing Value Added Tax (VAT) on fuel from Wednesday, towing the line of the Centre which reduced the Central Excise duty by ₹2 on October 4, other States, including Karnataka, are under pressure to reduce the rates.

The reduction in the rates coincides with the demand by truckers and petroleum dealers to bring auto fuels under the Goods and Services Tax (GST) regime. Both sectors have sought uniform pricing across the country under the one nation, one tax concept to facilitate equality, both for operators and State governments.

Gujarat, which used to charge uniform 28.96% VAT on both petrol and diesel, slashed the rates by 4% and it may lose ₹2,316 crore a year in revenue. Maharashtra too reduced the rates by ₹2 and ₹1 for petrol and diesel respectively and said it would lose about ₹2,000 crore in revenue a year. Karnataka, which had to abolish entry tax on auto fuel following the GST rollout from July 1, said it would lose about ₹2,000 crore a year.

On Wednesday, Uttarakhand too announced slashing VAT by 2% on auto fuel where petrol is taxed at 33.25% and diesel at 19.93%.

Considerable revenue

Both the Central and State governments are reluctant to bring auto fuel under the GST in view of huge revenues they are generating through Central Excise and VAT. Centre’s revenues from petroleum products almost doubled from ₹1,72,066 crore in 2014–15 to ₹3,34,534 crore in 2016–17, while it would part with 42% of the earnings with the State governments. State governments’ earnings rose from ₹1,60,554 crore in 2014–15 to ₹1,89,770 crore in 2016–17.

Maharashtra had mopped up the highest revenue, whose receipts from petroleum products increased from ₹19,795 crore in 2014–15 to ₹23,160 crore in 2016–17. Karnataka too witnessed substantial earnings, which rose from ₹8,668 crore to ₹11,103 crore during the period.

While Karnataka Chief Minister Siddaramaiah ruled out any rollback in VAT on auto fuel, Additional Chief Secretary (Finance) I.S.N. Prasad said he doubted if all States would agree for GST, during the next at least a year or so until the new tax regime stabilises.

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