Maharashtra to levy drought tax on several items

MUMBAI: A range of items including petrol, diesel, alcohol, cigarettes, cold drinks, diamond and gold jewellery will cost more from tonight in Maharashtra, as the Devendra Fadnavis government, in a desperate bid to bolster its finances, has decided to levy a surcharge to tackle drought in the state. This is the first time since 1973 that a state government has decided to take such a drastic step.

Finance Minister Sudhir Mungantiwar said the surcharge — he described it as essential but temporary and would be effective for the next five months — is meant to help farmers who have been hit by one of the worst droughts in recent times. There will be a surcharge of Rs 2 on petrol and diesel, while a 5% VAT will be imposed on alcohol, cigarettes and cold drinks. Gold and diamond jewellery will also see an increase in VAT of 20%.

"We are hoping to raise Rs 1,600 crore in the next five months, and a further decision will be taken in the next budget," said Mungantiwar. Curiously, in 1973, when the state was hit by one of its worst famines, the state had levied a professional tax to tide over the crisis, but the levy continues to exist even now.

Madan Sabnavis, chief economist of CARE, a rating company, described the decision as "fairly progressive". "Looking at the finances, there’s not much elbow room since a large part of the state has been affected by drought. This is a pragmatic thing done by the state government," he said.

Sabnavis said that the increase would be marginal and only a few people would be affected, hence it won’t be inflationary. He, however, suggested that the surcharge should be in place for at least another year.

"Five months is too short a time to feel any impact, they should keep it for at least another year, if not more." The Rs 2 surcharge on fuel would not hit people hard except for those living in Mumbai. For, the state government, while increasing VAT, has also removed petrol and diesel from the Local Body Tax (LBT), effective today.

Earlier, LBT was levied on petrol and diesel as the state reasoned that since fuel companies have a turnover of more than Rs 50 crore, they can’t be exempted from LBT.

However, the state, sensing that an increase of Rs 2 would hit consumers, has decided that it will stop levying LBT on fuel in the state. Mungantiwar said that removing LBT from diesel and petrol would mean a marginal increase or decrease of 50 paise. "In more than 25 municipal corporations (including Thane, Navi Mumbai, Pune), there would be a slight increase or decrease of 50 paise on diesel and petrol prices. But since Mumbai doesn’t have any LBT, the city’s residents would end up paying Rs 2 more for the fuel they buy.