Reserve Bank of India (RBI) Governor Shaktikanta Das said on Wednesday that a reduction in VAT on fuel would help ease inflationary pressures as well as expectations.
On May 21, the central government reduced excise duties on petrol by a record Rs 8 per liter and those on diesel by Rs 6 to relieve consumers battered by high fuel prices which have also driven inflation at a record high. At that time, he asked states to reduce VAT to provide additional relief. Almost no state reduces VAT.
Announcing the fortnightly monetary policy, Das said a quick survey of urban households undertaken after the May 21 petrol and diesel excise duty cuts showed a significant moderation in their inflation expectations. .
“In such a scenario, a further reduction in state VATs on gasoline and diesel nationwide can certainly help ease inflationary pressures as well as expectations,” Das said.
Finance Minister Nirmala Sitharaman, when announcing a reduction in excise duties, had urged states to reduce VAT. His other cabinet colleagues, including Oil Minister Hardeep Singh Puri, made similar pleas.
But virtually no state cut VAT after the excise duty cut was announced on May 21.
In April, Prime Minister Narendra Modi had also asked states to reduce their taxes to allow users to fully benefit from previous excise duty reductions of November 2021. Non-NDA states had not reduced VAT .
Excise duty cuts after November 2021 on petrol by Rs 5 per liter and on diesel by Rs 10 per litre, 25 states and UT had reduced VAT to give further reprieve to consumers battered by record retail prices .
However, states run by non-NDA parties like Maharashtra, Andhra Pradesh, West Bengal, Kerala and Tamil Nadu had not reduced VAT.
“Many states like Maharashtra, West Bengal, Telangana, Andhra Pradesh, Tamil Nadu, Kerala and Jharkhand have not accepted our request for one reason or another, and the burden on the people of these states continued,” Modi had said on April 27.
“I urge you that in the interest of the nation, please undertake what should have been done six months ago in November. Give consumers in your state the advantage by lowering the VAT.” For a nation 85% dependent on imports to meet its oil needs, soaring international crude oil prices following the Russian invasion of Ukraine, as well as foodstuffs and raw materials, have contributed to raise the inflation rate to 7.8% in April.
To control soaring prices, the Union government reduced excise duties.
The two reductions – first in November 2021 and then in May 2022, reverse the increase of Rs 13 and Rs 16 per liter in petrol and diesel taxes made between March 2020 and May 2020 to avoid passing on to consumers the sharp drop in international oil prices.
The 2020 excise duty hikes had raised the central taxes on petrol to their highest level of Rs 32.9 per liter and that on diesel to Rs 31.8 per litre.
After the last excise reduction, the incidence of the central tax on petrol fell to Rs 19.9 per liter and that on diesel to Rs 15.8 per litre.
The central excise represents 20% of the price of gasoline, against 26% previously. It now represents 17.6% of the price of diesel. After taking into account local sales tax or VAT, the total tax impact on the price of petrol is 37% and that of diesel 32%, compared to 40-42% previously.
The excise tax on petrol was 9.48 rupees per liter when the Modi government took office in 2014 and that on diesel was 3.56 rupees per litre.
The government had, between November 2014 and January 2016, increased excise duties on petrol and diesel nine times to recoup gains from falling global oil prices.
In total, petrol tariff duty was increased by Rs 11.77 per liter and diesel duty by Rs 13.47 per liter during these 15 months, allowing the government excise more than double to reach 2.42,000 crore rupees in 2016-17 from 99,000 crore rupees in 2016-2017. 2014-15.
It reduced excise duty by Rs 2 in October 2017 and by Rs 1.50 a year later. But it increased the excise duty by Rs 2 per liter in July 2019.
It increased the excise duty again on 14 March 2020, by Rs 3 per liter each. On May 6, 2020, the government again increased excise duty by Rs 10 per liter on petrol and Rs 13 per liter on diesel.
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