Fuel: Truth About High-Tax States

Why Maharashtra, MP, Bihar, Andhra Pradesh, Telangana, Kerala, Bengal can & must cut duties

- KV Subramanian

Following the cut in excise duties on petrol and diesel by the Centre, a lot of claims have originated from states. But let’s separate facts from fiction.

First, let us correct the misperception that some states have actually cut their taxes in the last few days. For instance, a news report on May 23 stated: “Kerala’s LDF government reduced taxes by Rs 2.41 and Rs 1.36 per litre on petrol and diesel, respectively. The Congress-led Rajasthan government cut VAT on petrol by Rs 2.48 per litre and diesel by Rs 1.16 per litre, while the Shiv Sena-led Maharashtra government cut VAT by Rs 2.08 per litre on petrol and Rs 1.44 per litre on diesel.” Operative words in the report are “reduced” and “cut”. However, the perception these operative words create is incorrect.

Decreases in VAT in these states are an inevitable outcome of the Centre’s cuts in excise duty. As petrol and diesel are not included in the GST, the consumer pays state taxes even on the central tax. In fact, the key reason for instituting the GST was to avoid this “tax on tax” the consumer used to pay.