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Cabinet fixes VAT on fuel, people won't benefit from sharp crude fall
February, 24th 2016

Seventy-two hours before Madhya Pradesh finance minister tables his budget, the state cabinet decided to fix value added tax (VAT) on petrol and diesel at rate of Rs 18.50 and Rs 13 respectively, paving way for dramatic changes to VAT Amendment Bill. This makes Madhya Pradesh the only state to levy highest VAT on petrol.

The unprecedented changes in VAT Bill will fix tax rate at 31%, but not below Rs18.50 per litre. This will be irrespective of fuel price changes according to fluctuations in global crude. The decision is likely to insulate the state's revenue from petrol and diesel even as national and international crude oil prices are at all-time low. Experts say Madhya Pradesh will not benefit from Centre's fuel deregulation policy as citizens will receive minimal relief in case of a sharp dip in global crude prices.

"The state has decided to fix VAT prices on petrol and diesel after the cabinet nod," said government spokesperson and cabinet minister Narottam Mishra, on Tuesday. However, Mishra refused to elaborate upon finer points of the Bill. Sources told TOI the government has authorized the commercial tax department to finalise rates and amount to be levied. The big decision just 3 days before the state budget shows a desperation to narrow fiscal deficit by a debt-ridden government while flaunting a populist budget in the assembly.

However, the decision is contrary to Centre's claim that state governments curb inflation by reducing tax on petroleum products.

Sources in the commercial department disclose that 32% of state's revenue comes from taxes on petrol and diesel. Once crude price slumps, it takes more than a week to increase VAT through official process. As of now, government has raised VAT on petrol and diesel four times and decreased it three times. The new Bill would keep rates fixed. "Petrol and diesel are in concurrent list and the state is not bound to follow Centre's policies to mop up revenue. The government's decision to fix VAT will have a minimal impact on oil price fluctuations as government will levy revenue as per rates fixed by commercial tax department, said taxation expert Jayant Kothari. Currently, three states, Uttar Pradesh, Jharkhand and Uttarakand have fixed VAT rates and revenue experts in Madhya Pradesh have studied the procedure.


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