More exemption: 22 states and federal territories slashed fuel taxes on gasoline and diesel – News Couple
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More exemption: 22 states and federal territories slashed fuel taxes on gasoline and diesel


An estimate of revenue losses for states is not immediately available.

Taking a cue from the centre, which cut taxes on petrol and diesel by Rs 5 per liter and Rs 10 per liter, respectively, as of Thursday, as many as 22 states and territories have reduced sales tax/VAT rates on the two fuels. Although state taxes are levied on value basis rather than center-specific fees, tax deductions by states/UTs are as high as Rs 8.7/liter for gasoline and Rs 9.52/liter in the case of diesel.

While state governments run by the BJP and its allies granted tax breaks to consumers, opposition-ruled states refused to follow the line, saying that since it was the center that raised taxes sharply, they should cut taxes and not the states. States have suffered a significant erosion of their independent fiscal sphere due to various steps the center has taken in recent years, including sharp increases in diversified operations, the proceeds of which do not need to be shared with states, opposition-ruled states say.

Of course, a reduction in central taxes will automatically translate into a reduction in state taxes because the latter are levied on the foundation, including center taxes. Any cut in the interest rate by the states will lead to a further reduction in the tax rate.

An official source told FE on condition of anonymity that the center’s revenue loss in November-March of the current fiscal year due to the fuel tax cut could be as high as Rs 65,000 crore.

Meanwhile, analysts at Nomura estimated that the center could lose Rs 45,000 crore (0.2% of GDP) in the remainder of FY22 due to tax cuts on motor fuels. “In FY21, the government earned Rs 3.7 crore (~1.9% of GDP) in production duties: Rs 32.9/liter on petrol and Rs.31.8/liter on diesel. They added that so far, in the first half of FY22, they added that Year-on-year gasoline consumption increased by 21.4% and diesel consumption by 15.4%, reflecting the sharp increase in activity.”

Analysts at Barclays said the impact of lower taxes on petrol and diesel on the center’s revenue in fiscal year 23 will be approximately Rs 1.3 crore (0.5% of GDP). They added: “Overall, the direct impact of this 12 basis point price cut will be on the core CPI in November, and this will have the indirect effect of a 12 basis point cut in 3 months, bringing the total impact to 24 basis point. according to our estimations. .

An estimate of revenue losses for states is not immediately available.

India Ratings’ chief economist, Devendra Kumar Pant, estimated that the center would forgo about Rs 58,000 crore in tax collection due to the latest move. “Given that tax collections were buoyant in FY22, this reduction is unlikely to change the FY22 financial account,” Pant noted. His estimate is based on fuel consumption growth in the first half of FY22 and assumes the same growth pattern for November-March of FY22.

In the first half of FY22, the Centre’s total tax fee receipts grew by 33% YoY to Rs.1.72 crore against budget estimates down 14% YoY to Rs.3.35 crore being the target for the full year. The center could still exceed its FY22 tax collection target.

On previous trends (excluding the pandemic-hit fiscal year 21), first-half revenue was typically 40% of full-year revenue. Therefore, the center could have collected Rs.4.3 crore in FY 22 if the excise duty had remained unchanged. So, even after reductions, tax duty receipts (86% of which are petrol and diesel) could be Rs 3.7 crore or 10% more than FY 22 BE.

PTI reports: “The additional reduction, along with the reduction in excise tax, is lowest in Uttarakhand due to lower tariff reductions and highest in UT in Ladakh. For gasoline, the over-reduction in excise duty ranges from Rs 1.97 per liter in the case of Uttarakhand to 8.70 Rs in the case of UT of Ladakh For diesel, the additional reduction justified by the VAT cuts, ranges from Rs 17.5 per liter in Uttarakhand to Rs 9.52 in the case of Ladakh.

The states and UTs that have extended additional VAT benefits are Karnataka, Puducherry, Mizoram, Arunachal Pradesh, Manipur, Nagaland, Tripura, Assam, Sikkim, Bihar, Madhya Pradesh, Goa, Gujarat, Dadra and Nagar Haveli, Daman and Diu, Chandigarh, Haryana, Himachal Pradesh, Jammu and Kashmir, Uttarakhand, Uttar Pradesh and Ladakh. Karnataka saw Rs 8.62 per liter cut in petrol price due to VAT cut and Rs 9.40 in diesel price, while Madhya Pradesh gave its citizens an additional cut in petrol price of Rs 6.89 and Rs 6.96 on diesel. Uttar Pradesh reduced the value-added tax on petrol by Rs 6.96 and diesel by Rs 2.04 per liter.

Countries that have not yet reduced VAT include the Congress and its allies who ruled Rajasthan, Punjab, Chhattisgarh, Maharashtra, Jharkhand and Tamil Nadu. AAP-ruled Delhi, TMC-led West Bengal, Left-ruled Kerala, BJD-ruled Odisha, AKP-led Telingana, and Congress-ruled Andhra Pradesh.

Wednesday’s consumption tax cut translated into a drop in the price of petrol in the range of Rs 5.7 to Rs 6.35 per liter across the country and diesel rates from Rs 11.16 to Rs 12.88.

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