New Delhi: The centre after cutting excise duty by Rs 2 on petrol and diesel, wants the states to cut sales tax or VAT on petrol and diesel by 5% to provide further relief to consumers.
States levy VAT as an ad valorem duty which rises every time there is an increase in price.
Finance minister Arun Jaitley will soon write to all state chief ministers urging them to cut VAT on petrol and diesel, oil minister Dharmendra Pradhan told reporters.
He said states impose VAT ranging from 26% to 38%. “I urge all states to reduce VAT by 5% in line with the cut in central excise duty to provide farmers and consumers with one more slab of relief.”
“We have proactively cut excise duty. Now it is the turn of states to reduce VAT,” he said.
“States are the biggest beneficiary. They get all of the VAT collection plus they also get 42% of the central excise collections. The amount remaining with the Centre is used to finance centrally sponsored schemes in states,” he said.
BJP-ruled Maharashtra levies 46.52% VAT (47.64% in Mumbai) on petrol, the highest in the country. Andhra Pradesh has 38.82% VAT on petrol while BJP- governed Madhya Pradesh levies 38.79% VAT on the fuel.
The government in June had ended 15-year-old practice of revising the rates and implemented the daily changes in petrol and diesel in line with international oil movements.