Excise cut to mount pressure on states that didn’t reduce VAT last time

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NEW DELHI: The Centre will forego Rs 1 lakh crore in tax revenue in this fiscal as a result of the excise duty cut. The subsidy for Ujjwala consumers will entail an expenditure of Rs 6,100 crore, finance minister Nirmala Sitharaman said while announcing the decisions.
This is the second duty cut by the Centre in a little more than six months.
The latest duty cut will bring down petrol price by Rs 9.5 per litre and diesel by more than Rs 7, depending upon the prevailing VAT rate in states, assuming the base rates remain the same. The Centre had on November 4, 2021 reduced excise duty by Rs 5 on petrol and Rs 10 on diesel. The latest cut has brought down the excise duty to the pre-pandemic level – rather lower by a few paise. On March 1, 2020, excise duty stood at Rs 19.98 a litre on petrol and Rs 15.83 a litre on diesel. These will. Now be Rs 19.90 and Rs 15.80 a litre, respectively.
The latest excise duty cut on fuel comes after the Ukraine war resulted in a spike in global prices, which was passed on to consumers resulting in petrol prices crossing the Rs 100 a litre mark and cooking gas cylinders costing over Rs 1,000 in most parts of the country.
The cut will bring down petrol price by Rs 9.5 per litre and diesel by more than Rs 7, depending upon the prevailing VAT rate in states, assuming the base rates remain the same.
The Centre had on November 4, 2021 reduced excise duty by Rs 5 on petrol and Rs 10 on diesel. The latest cut has brought down the excise duty to the pre-pandemic level — rather lower by a few paise. On March 1, 2020, excise duty stood at Rs 19.98 a litre on petrol and Rs 15.83 a litre on diesel. These will. Now be Rs 19.90 and Rs 15.80 a litre, respectively.
The reduction in pump prices will be slightly more in states with higher VAT such as Maharashtra, Rajasthan, MP and West Bengal than those with lower tax rates. This is because the incremental decrease in state levy will be more in high-tax states as VAT is charged after excise duty, dealer commission and other charges.
In the last round several BJP-ruled states had also reduced VAT on auto fuel, resulting in a sharper reduction in prices at pumps. The reduction in central tax to pre-Covid level takes away one of the opposition’s main planks for criticising the government. It will mount pressure on states that didn’t reduce VAT to match the November 4 excise duty cut to do it this time.
After the excise reduction in November, BJP-ruled states had promptly cut VAT. The AAP government in Delhi and Congress government in Punjab followed suit.



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