VAT cut impact; Mumbai's petrol prices down by Rs 2 per litre and diesel by Rs 1 per litre

While all the other metro cities saw rise in their petrol and diesel prices on October 11, 2017, it was only Mumbai who saw massive decline in its prices compared to previous day. 

Data of Indian Oil showed that on Wednesday - if compared with previous day, petrol prices were higher by 3 paisa in New Delhi at Rs 68.48 per litre, Kolkata at Rs 71.26 per litre and Chennai at Rs 70.96 per litre. 

Similarly diesel prices were up by 3 paisa in New Delhi at Rs 57.03 per litre, Kolkata at Rs 59.69 per litre and Chennai at Rs 60.04 per litre. 

However, Mumbai saw decline of nearly Rs 2 per litre and Rs 1 per litre in their petrol and diesel prices at Rs 75.59 per litre and Rs 59.58 per litre respectively. 

Such decline in Mumbai's fuel prices came in after when the Maharashtra Cabinet on October 10, reduced Value Added Tax (VAT) on petrol and diesel by Rs 2 per litre and Rs 1 per litre effective from midnight. 

From the midnight of Tuesday, petrol price in Maharashtra will be Rs 60.55 per litre and diesel near Rs 59 per litre. 

This decision has pushed Mumbai's fuel prices to a two month low. Last time when this city saw petrol at Rs 75 per litre and diesel Rs 59 per litre was in the month of August 2017. 

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.

In Maharashtra, petrol and diesel prices are trading near Rs 80 per litre and Rs 61 per litre by end of September 2017- which is at three year high. 

Last year on September 17, 2016, Maharashtra Chief Minister Devendra Fadnavis hiked VAT on petrol by Rs 1.50 per litre. It has not touched diesel prices, fearing losing revenue to neighbouring states. 

Hike in VAT was made in two categories on that day. Where VAT was 12.5%, it was raised to 13.5%, and where it was 5.5% - then was  increased to 6%. 

After bearing the revenue loss of Rs 13,000 crore from excise duty for remaining FY18, the Finance ministry and Oil ministry had asked states to also bear a part of the impact. 

The ministry stated that the revenues of both the Centre and state governments would be impacted by duty cuts but an upward movement in the economy would give adequate space for covering up of the lost revenue.

70% of total final retail prices of petrol and diesel are accounted by tax charges.

Excise duty by the ministry has been cut by Rs 2 per litre each in petrol and diesel. 

Many media reports highlighted that such cut in VAT would not only hit Maharashtra’s exchequer but also lead to a revenue loss of Rs 2,600 crore. 

Also considering the farm loan waiver provided by Maharashtra will add in shooting up debt stocks up to Rs 4.13 lakh crore in FY17. Thus a VAT cut will further aggravate the state’s burden to revive economy.