The 2% cut on value added tax (VAT) on both diesel and kerosene by the Maharashtra state government will be applicable beginning Friday. On June 29, the state government had announced a cut on VAT after the price hike announced by the Centre.

This meant a reduction on VAT on diesel in areas such as Mumbai, Thane and Navi Mumbai from 26% to 24% and from 23% to 21% in the rest of the state which averages to a 72p reduction for every litre of diesel. Similarly, kerosene will come down by 28p per litre with the VAT being reduced from 5% to 3%.

Chief minister Prithviraj Chavan pointed out that this VAT reduction had resulted in a revenue loss of around Rs438 crore in the state.

The Centres decision to give tax exemptions on excise and customs to oil companies in the public sector put a Rs49,000 crore burden on the central government, of which an additional burden of Rs820 crore has been passed on to the state, he said. Right now the state collects Rs8894 crore from taxes on petrol and diesel annually.