Fuel tax cut unlikely as Centre projects Rs 30,000 crore revenue hit

NEW DELHI: As Andhra Pradesh joined Rajasthan in reducing VAT on petrol and diesel , the Centre on Monday seemed to be holding out against a cut in taxes amid rising pressure, with officials indicating that the government did not want its welfare schemes to suffer for want of revenue.

While opposition parties supported the Congress-called Bharat bandh , BJP blamed global factors for the rise in pump prices of petrol and diesel. "We are standing with people in their problem. We are trying to redress the issue and will do that," law and IT minister Ravi Shankar Prasad told a press conference.

Government officials, however, suggested that the Centre may not lower duties as a Rs 2 per litre reduction would impact revenue by Rs 28,000 crore to 30,000 crore. Instead, more states are expected to reduce VAT, which will lower prices without impacting the Centre's tax collection. "We pass on over 40% of the taxes that we collect to the states. So, any reduction by us will impact everyone," said the official, after the Andhra government announced a reduction of Rs 2 in the prices of auto fuel. Besides, officials argued, states follow a system of ad valorem levies, which pushes up the revenue, whenever prices go up.

Fuel prices have been hitting record highs due to the falling rupee and high global crude prices. Prices in Delhi, where rates are cheapest among all metros and most state capitals, saw petrol touch an all-time high of Rs 80.73 a litre on Monday, while diesel was at a record Rs 72.83 a litre.

Petroleum minister Dharmendra Pradhan is understood to have met BJP chief Amit Shah on the situation. The government is of the view that a weak rupee along with high international crude oil prices can impact fiscal deficit as well as current account deficit. In its assessment, a cut in duties will hit the rupee as well as interest rates due to the fallout on the bond market and leave a far deeper dent than a revenue loss of Rs 28,000-30,000 crore.

"Then, you have to make budget cuts in developmental expenditure. This is the real consequence of oil tax cut," said a source. Suggesting that it is not possible to significantly reduce tax burden on oil, an official said, "Even when UPA was in power or in any state where UPA and others are in power today, oil is a source of revenue for the state government. The rational approach has to be that we increase the taxation base of direct taxes flowing from income-tax and GST, and improve GDP to nonoil tax ratio so that burden of taxation on oil can be reduced." said an official.