The Union government on 21 May reduced the excise duty on petrol by Rs 8 per litre and diesel by Rs 6 per litre, announced Union Finance Minister Nirmala Sitharaman.
The measure comes as a relief, amid rising inflation – spike in prices of not just fuel but also vegetables, food grains, cooking oil, and a host of essential commodities.
Following this, state governments, too, have reduced the Value Added tax (VAT) – a key component in fixing prices of petrol and diesel. Which states have decided to reduce VAT? Why have some states decided against this?
Here's all you need to know.
How is petrol price calculated?
It can be understood with this formula:
Price at which the petrol dealers/distributors buy from oil marketing companies (OMCs) such as Indian Oil and Bharat Petroleum + Excise duty (which is charged by the Centre) + dealer's commission + VAT (which is levied by the state government) = Retail price of petrol.
What are the factors affecting petrol prices in India?
There are a few factors exercising direct control over petrol prices. According to the PPAC (Petroleum Planning and Analysis Cell) under the Ministry of Petroleum and Natural Gas, these are:
Crude Oil Cost: It is unrefined oil, the price of which fluctuates with demand and supply imbalance, foreign relations and future reserves and supplies.
Increased Demand: With an increase in vehicle-owning population, demand increases which affects its price.
Taxes: Prices change as per the changes in government policies imposing tax on fuels – there are two major tax levied on petrol. This is the excise duty and the value added tax (VAT).
Rupee and Dollar: When dollar strengthens against Indian rupee, buying cost of OMCs increase, and hence the price of petrol.
Why does petrol price differ from state to state?
Fuel prices in the country does not come under the Goods and Services Tax (GST). While the excise duty is collected by the central government for its pocket, the VAT goes to the state government's revenue.
This VAT differs from state to state, and hence the difference in price.
Some states also levy an additional cess charge, apart from VAT. Like Tamil Nadu for example – which charges Rs 11.52 per litre as cess, apart from 13% VAT on petrol. It also charges Rs 9,62 on cess and 11% VAT on diesel.
Which states have reduced VAT after the Centre's announcement?
Maharashtra
The Maharashtra government 22 May announced a reduction in VAT on petrol and diesel by Rs 2.08 per litre and Rs 1.44 per litre. This reduction will be implemented with immediate effect, said a statement from the Uddhav Thackeray government.
In Mumbai, petrol is retailing at Rs 111.35 per litre after the latest excise duty cut, while diesel is being sold at Rs 97.28 a litre.
Rajasthan
Rajasthan Chief Minister Ashok Gehlot also said the state government will reduce VAT by Rs 2.48 per liter on petrol and Rs 1.16 per liter on diesel. In Jaipur, the prices are currently at Rs Rs 108 and Rs 93 – a Rs 9 and Rs 7 price reduction of petrol and diesel respectively.
Kerala
The Left-ruled Kerala has announced that it will cut – by ₹2.41 per litre for petrol and ₹1.36 for diesel.
Which states have refused to cut down on VAT? Why?
This will adversely affect the revenue of state governments, explained DMK and TMC governments in Tamil Nadu and West Bengal respectively.
In November 2021, when the Centre reduced the petrol by Rs 5 per litre and that on diesel by Rs 10 a litre, 25 states and UTs had cut VAT to give further reprieve to consumers. Some state governments have explained that they will not be able to cope with additional burden, and instead pushed Centre to further cut excise duty.
Tamil Nadu
Tamil Nadu Finance Minister Palanivel Thiaga Rajan ruled out against cutting down the VAT, stating that it was not a "fair expectation for the states". In Chennai, petrol is being sold at Rs 102.63 per litre and diesel at Rs 94.24 a litre.
He said that Tamil Nadu was already incurring a loss of over Rs 1,000 crore due to the earlier tax cut announced by the union government in November 2021.
“The central government didn’t inform, let alone ask for any state’s view when it increased Union taxes on petrol by Rs 23 per litre (over 250 percent) and diesel Rs 29 per litre (over 900 percent) from 2014. After rolling back 50 percent of the increases, the Centre is exhorting states to cut. Is this federalism?” asked Thiaga Rajan, reported Business Standard.
West Bengal
The West Bengal government too has said hat it will not cut VAT, as it will increase the "economic blockade" of the states. The latest petrol price now stands at Rs 106.03 per litre, while the price of diesel is Rs 92.76 per litre in Kolkata.
TMC national spokesperson Sukhendu Sekhar Ray said that West Bengal will slash fuel prices once the Centre cleared dues amounting to Rs 97,000 crore.
Odisha
Petrol prices across Odisha dropped by ₹2.23 per litre and ₹1.36 per litre for diesel as a result of the centre's cuts. However, the VAT has not been reduced in the state. Petrol costs Rs 102.25 per litre and diesel Rs 94.86 per litre on Monday.
Delhi
The price of petrol in Delhi has been reduced to Rs 96.72 per litre, while the per-litre diesel price now stands at Rs 89.62. However, there has been do reduction in the VAT levied by the AAP government.
What about BJP-ruled states?
Most states ruled by the BJP and its allies have been non-committal about reducing VAT rates on fuel, citing state government's revenue.
Madhya Pradesh
In Madhya Pradesh, former Chief Minister and Congress leader Kamal Nath demanded that the BJP government, led by Kamal Nath, reduce VAT on petroleum products to further bring down the rates.
Karnataka
In BJP-ruled Karnataka, Chief Minister Basavaraj Bommai said his government will consider a further tax cut on fuel.
"The decision (Centre's) has come on Saturday night, let's see, we will consider it," Bommai told reporters.
In Bengaluru, petrol is sold at Rs 101.94 per litre, and diesel at Rs 87.89 per litre.
Gujarat
Speaking to Business Standard, senior Gujarat officials said that they were unlikely to follow suit and reduce VAT on petrol and diesel.
“We are trying to figure out if there will be any impact on state revenue,” said a senior government official told Business Standard.
What are the petrol and diesel prices in other major cities?
Prices of petrol
Gurugram: Petrol: Rs 97.18 per litre, Diesel: Rs 90.05 per litre
Lucknow: Petrol: Rs 96.57 per litre, Diesel: Rs 89.76 per litre
Noida: Petrol: Rs 96.79 per litre, Diesel: Rs 89.96 per litre
Chandigarh: Petrol: Rs 96.20 per litre, Diesel: Rs 84.26 per litre
Hyderabad: Petrol: Rs 109 per litre, Diesel: Rs 97 per litre
Pune: Petrol: Rs 111 per litre, Diesel: Rs 95 per litre
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