The Maharashtra government's move to reduce two per cent value added tax (VAT) each on diesel and kerosene will convert the Rs 58 crore revenue surplus budget to a revenue deficit one for 2011-12.

The state government expects to incur a revenue loss of at least Rs 450 crore due to the VAT cut. In addition, it is likely to lose Rs 800 crore which it would have got during the year under devolution of funds from the Centre which would forego a revenue of Rs 49,000 crore due to waiver in customs and excise duties on petroleum products.

Maharashtras move will put additional burden on the sales tax department to put in more efforts to increase collection to make up for the loss. During 2010-11, the sales tax department had collected a record VAT of Rs 44,000 crore against the target of Rs 35,000 crore up 29 per cent. The department will now have to collectRs 50,000 crore by the end of 2011-12 to ease the burden.

Besides, the government has estimated revenue receipts ofRs 1,21,503 crore against a revenue expenditure ofRs 1,21,445 crore in the current financial year. The Planning Commission has approved a plan size ofRs 42,000 crore.

The state Cabinet which took the decision at its meeting held today, was under pressure from respective parties and the Opposition. However, the government has not announced when the decision will be executed. Diesel would be cheaper by 72 paise per litre and kerosene by 28 paise per litre.

Chief Minister Prithviraj Chavan admitted that there were every chance that the state would ultimately end with a revenue deficit budget for the current financial year.

The decision to reduce two per cent VAT each on diesel and kerosene will not, however, impact any development scheme, nor will it lead to a situation to apply cut in their implementation. The government will make all out efforts to mop up additional taxes to make the gap. He clarified that the state government had not imposed VAT on LPG cylinder and therefore there was no question of a reduction.

Deputy Chief Minister and Finance Minister Ajit Pawar said, in his annual budget he had proposed zero VAT on LPG cylinder. "Had the government imposed four per cent VAT, the government would have mobilised a revenue ofRs 250 crore.