Retail prices of petrol and diesel will go up by Rs 2 per litre each in Punjab as the state government has increased the tax on petrol and diesel on Tuesday night. It raised the value added tax (VAT) on diesel from 11.80 per cent to 15.15 per cent and on petrol from 20.11 per cent to 23.30 per cent, official said.

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The new rate will come into effect from midnight.

After the raise in VAT on fuel, the retail rate of petrol will increase from Rs 70.38 a litre to 72.43 a litre, while the rate of diesel will go up from Rs 62.02 a litre to Rs 64.06 a litre, said Ashwinder Mongia, a member of the Punjab Petroleum Dealers Association.

Mongia slammed the state government for increasing the VAT rates, saying it would encourage smuggling of fuel and adversely hit the interest of petroleum dealers.

"The move of the state government is not going to result in much increase in revenue collection. Rather it will encourage smuggling of fuel from Chandigarh, where the tax rates are much lower," he said.

After the increase in VAT, the prices of petrol and diesel in Punjab will be costlier by Rs 6.61 a litre and Rs 4.86 a litre respectively than Chandigarh.

Presently, the price of petrol and diesel in UT Chandigarh is Rs 65.82 and Rs 59.30 a litre respectively.

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The state government on Tuesday night notified the amendments in Schedule E appended to the Punjab Value Added Tax Act, 2005, a statement said.