PM Modi urges some states to reduce VAT on petrol, diesel

Amidst the rising concern about the high price of petrol and diesel, Prime Minister Narendra Modi on Wednesday asked some states to comply with the proposal to reduce VAT on petrol and diesel. Speaking at an interaction with the chief ministers, Modi said some states such as West Bengal, Maharashtra, Kerala, Telangana, Andhra Pradesh and Tamil Nadu have not reduced VAT on petrol and diesel despite the central government's move to reduce excise duty in November last year.

Prime Minister's comment comes at a time when both petrol and diesel prices have been increased by ₹10 per litre moping the benefits of the price reduction took place post-November 2021. The central government on November 4 last year announced a cut on excise duty on both petrol and diesel. This prompted several state governments to reduce their respective VAT rates and pass on the benefits of price cuts to the consumers. However, some of the state governments didn't announce any reduction in their VAT rates for both petrol and diesel.

The retail prices of petrol and diesel comprise various components including central and state government taxes. The excise duty on petrol and diesel, which is imposed by the central government, has increased by around three times and ten times, respectively, since 2014. The state governments on the other hand impose VAT on both petrol and diesel. The total tax incidence at times goes significantly higher than the actual price of the motor fuel.

The excise duty on petrol was increased from ₹9.48 per litre in 2014 to ₹32.90 per litre in 2021. Excise duty on diesel too has been increased from ₹3.56 per litre in 2014 to ₹31.80 per litre. However, the excise duty in November last year was reduced by ₹5 per litre for petrol and ₹10 er litre for diesel.

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