States are estimated to lose roughly 1/4th or Rs 35,000 crore annually out of the total projected revenue loss of 1.40 lakh crore from the excise cuts on petrol and diesel.
This is despite the fact the Centre has reduced only the road cess, collections from which are not shareable with the states. But since State Vat is ad valorem and calculated on the base price plus excise duty, the tax cut will translate into a revenue hit for the states, even without a lower VAT.
Consequently, price reduction for consumers even in states which haven’t reduced their VAT yet, will be more than the Rs 5 a litre for petrol and Rs 10 a litre for diesel announced by the Centre.
One example is Delhi, which hasn’t reduced VAT so far.
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Against the Rs 10 cut on diesel, which should translate into a similar price cut on retail selling price, the actual reduction is higher by Rs 1.97 a litre, at almost Rs 12 a litre. Hence Rs 98.44 a litre of diesel now costs Rs 86.47 and not Rs 88.44.
Similarly, against a Rs 5 cut on petrol, the actual benefit to consumers is higher by Rs 1.50 a litre at almost Rs 6.50 a litre. Hence petrol now costs Rs 103.20 a litre against the earlier rate of Rs 109.71 and not Rs 104.71 as litre.
Government officials tell CNBC-TV18, the “states stand to lose Rs 2-2.50 a litre, even without reducing VAT. Along with VAT cuts the total revenue forgone for the Centre and states could be in the range of a 1.60 lakh crore over 12 months.”
The central government is roughly projecting a 1.40 lakh crore annual hit to the exchequer on account of the steep excise duty cuts, with Rs 55,000-60,000 crore revenue loss estimated in the remaining 5 months of this fiscal.
This would make achieving the excise duty target of 3.35 lakh crore for FY22 a bit challenging, with less than 1.72 lakh crore collected till September this fiscal.
(Edited by : Priyanka Deshpande)
First Published: Nov 4, 2021 2:37 PM IST
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